I can TOTALLY understand your concerns. My son, 12 years old is dyslexic. It's not at a debillitating level, but it does cause problems and we have to work really hard to keep things going smoothly in school. I know the sadness this causes for all concerned. I know people call it a learning disability, but really, if you look at it, it's truly a learning difference. I say this because children with dyslexia learn differently. They ARE able to learn and they ARE able to thrive and make good grades. The key thing is learning that you can't work against it. You must learn to work with it because usually, children with dyslexia are very bright and intelligent, but because of the dyslexia, their grades do not reflect their true intelligence.
I don't know where you live, but I found the most help in understanding my son's dyslexia through Dr. Mel Levine and the All Kinds of Minds Student Success Center in Chapel Hill, NC. I actually had my son screened there after having him screened by one of our local psychologists in the town we live in.
The main thing is making sure that modifications are in place at school. You will have to really stay on top of the schools to have them prepare and FOLLOW an IEP, Form 504, or whatever kind of alternative educational plan your state school system has. You nephew is entitled.
Be strong, be patient, and the very best of luck in helping your nephew. There is hope, and he can thrive, and he can accel. Don't give up!
You might want to take a stroll over to the Learning Disabilities board to find some more information...