This may sound unconventional but it almost sounds like he needs to be skipped again, to an environment where a) he won't find the material easy enough to boast about, and b) the kids will be older enough to mentor him.
I don't think moving him down a grade will work unless he is given individual curriculum. That would be ideal - if he could be with the nicer kids but be given his own level of work to do. Is that possible? I know you said he was at the higher level at the other school but where they willing to completely individualize the work for him?
Also, have you ever actually observed him in class? They can be quite different. I've seen my sweet, sensitive daughter become quite bossy and boastful when she is irritated or feels threatened.
Don't lose sight of the fact that the substituting mom chose her words poorly when she said something is "wrong with him socially." She should have said he's struggling, or having challenges. There's nothing "wrong" with your son. Something that I've learned is that we need to remember that not everyone has the capacity to make the best word choices all the time, so take what she said with a grain of salt.
What about public school and a grade skip? It doesn't sound like this private school is a good environment for him.
