You get my four cents (two per topic):
Colorado, like California, is a state where there are some really conservative spots and some really liberal spots. You have cities like Boulder, which is full of hippies who can give Berkeley a run for its liberal money, and then you have areas like the rural southern farmlands that have more in common with the deep South. Colorado Springs is, from what little I saw of it and what I've read, is conservative, but not ridiculously religious. I know that it was one of the cities that started to really embrace the Tea Party's politics, then paid for it a year later when they had to stop things like nursery care and street lights. However, if this high school has a zero tolerance bullying policy, it must not be that conservative. If you've ever been to California's Orange County, I think it's a lot like that.
With regard to kiddkasper's suggestion, martial arts can be a great outlet for a gay person and a teenager. It teaches discipline, helps with physical fitness, and works wonders at relieving stress and getting your mind off whatever is bugging you. The ability to defend oneself is also very helpful, if only for the confidence it bestows in a variety of situations.
That said, it may not be for your nephew. A person has to WANT to pursue a martial art to reap the benefits. If your nephew is not inclined toward it, it shouldn't be forced on him. Additionally, the type of person the sensei/instructor is makes a huge difference. Some sensei are amazing people while others can be complete assholes who teach through fear instead of respect. (Most, in my experience, are thankfully the better type.)
So in short, I'm all for suggesting the martial art route, but it won't be a magic bullet. If your nephew does take one up, I would advise your sister to sit in on at least the first few classes and keep tabs on if her son is actually enjoying it.
One other thought (sorry, this is going longer than I intended). One big thing that will really help your nephew is if he can have something where he can truly express himself. Something, anything, where he can release stress, throw himself in, and do it with others. Forming those connections, with himself and with others, is going to be one of the best things that can be done to make sure he becomes a healthy adult.