Yes, it is correct... but it would sound less formal if you say: "Todos duermen, excepto yo" or even better: "Todos duermen, menos yo"

formally correct, but sounds a little stiff "nobody is sleeping but me" sounds a little smoother

"Everyone is sleeping except me." = "Todo el mundo está durmiendo menos yo". Sería otra forma de traducir tu frase pero la tuya es también correcta.

Yes, it is correct... but it would sound less formal if you say: "Todos duermen, excepto yo" or even better: "Todos duermen, menos yo"