It sounds to me like he really is already in 1st grade. The only things he's with his agemates for are the social stuff.
Does he get along well with the older grade? If so, I'd say skip him. It would be less confusing for all concerned.
Even if not, I'd still think seriously about it. They might be rejecting him because he's not "really" a 1st grader. If he becomes a full-fledged member of their grade, he might be treated differently.
Plus you could grease the wheels now and over the summer by staging some playdates with the older kids.
<Bursting into song>
Matchmaker matchmaker, make me a match!
