I'm a YC founder from S15 and was working at another YC company as an employee when we got the idea to apply to YC. Not exactly the same situation, but I've been here, and several founders in our batch went through similar situations. Feel free to email me if you want to discuss specifics - it will remain 100% confidential.

1.) This is really tricky from your brief description. Hire a lawyer asap if you're even remotely serious about leaving and doing your side hustle full time. Not trying to discourage you, but there are going to be some IP issues to sort through that shouldn't be ignored.

2.) Ideally if you leave and apply to YC, you want to have your boss say positive things about you. It's not just for YC: every single investor will ask you about the jobs you've had before you started your company. If there are any red flags that you or your company are going to get sued, they won't invest. The best way to handle this is by ending on good terms (and ideally getting some sort of IP release agreement with the help of a lawyer [but that may not be feasible, given the new direction your current employer]).