When I was small, and quite small for my grade-- along with being somewhat spindly and wearing huge glasses-- the biggest kid in my grade at the time started picking on me. Let's call him Lance, because that was his actual name, unless it wasn't. This would have been in second or third grade.
The bullying escalated to pushing during recess, to the extent I started getting afraid to go outside at lunchtime. My mom told me something to say to him, which I don't remember but was designed to combine humor with lack of fear, and it worked. He actually stuck up for me a few times after that.
In a later grade I was bullied much more extensively by two kids from the local projects, one of whom lived very close to my house. Books were taken, I was roughed up a bit, etc. I finally had enough on the bus one day and took it out on one of them, as ferociously as I was capable-- I'm glad in retrospect I wasn't bigger and stronger. I won. I got in plenty of trouble, but it was a defining moment for me. If there's a God, I thank him/her/it for that experience, since it strengthened my self-concept as a brave instead of a weak person.
With bullying, I would worry about two things: severe injury (this is actually pretty unlikely but parents will worry), and having the child's spirit broken or at least dulled a bit. I don't think fighting back is necessary or even a good response in every situation. I agree that if they're hitting you, it's different.
I wish I had advice for you. I think your son is doing great to keep playing. Reward him for his toughness in every way you can, and maybe the situation will sort itself out. Maybe some karate or similar lessons would be useful in building up his physical self-confidence.
