Frustrating, but I don't know if this one is worth the fight. Around here, college credit for a college class offered in high school (on the high school property) is rarely accepted as credit except by the college offering the course. Your school has not prevented 9th graders from taking the class and the class counts as high school credit. They have served the gifted student's educational needs by permitting him to take the class.
I'm not a lawyer, but there is lots of other stuff going on that seems "more illegal" and occurs at a district level (so might be more vulnerable to legal challenge than a state law) - like our district's policy that if you take an AP class but don't take the College Board AP exam, the AP designation is dropped from the transcript. That sort of policy appears in many other districts. Forcing parents to pay $92/exam (times 5 or 6 exams) for a student probably goes against FAPE, but our attorney-filled high SES district has not had a legal challenge to the policy yet. Legal challenges are costly and time consuming, and even if successful, are unlikely to benefit the specific students for whom the action was initiated.
I would think twice about declaring the student a 10th grader then repeating 10th grade. In our state, once you get past 6th grade, repeating a grade can have impacts. In particular, I'm thinking about athletics - the forms ask if you repeated a grade after 6th grade. While designed to prevent a kid from staying in HS for an extra year or two and continuing to play, such rules may not take into account a grade skip followed by a repeat. Additionally, if it appears that he repeated a grade on the HS transcript, that might have significant repercussions for college admissions. Though you could explain, I would fear that some schools, especially selective ones, might not even get to the explanation.
