"DS8 and I were practicing his spelling words and I noticed that he really can't tell the difference between the "v" sound and the "th" sound (ie trustworthy vs. lovely). I'm assuming this is related to his auditory processing issue."

Yes, this can be part of CAPD or auditory processing deficits. One of the subtests my child scored very low, the write-up mentions this, although, I think they mention /f/ instead of /v/. Those two sounds are also very close, though.