That is weird that your DS's handwriting is getting worse--what does the private OT say about that?
I never held a pencil correctly either (I still have a huge callus where I hold it against the knuckle of my middle finger), but I think my handwriting is fine. I went to public school my whole life and I don't remember anybody trying to correct my grip (or a lot of other stuff--it's amazing to me how much things have changed).
DD had trouble with writing at her Montessori school in first grade and we took her to a private OT who did a lot of work with these little flip crayons to help DD develop her grasp and also gave her some grips to use. Fortunately that all helped a lot and now she doesn't use grips anymore (I think she used them for about a year, at school). She can write well if she takes her time, but it takes her quite awhile and we were told she has dysgraphia. The psych report recommended accommodating this by allowing her to type, but for some reason her current teacher seems quite cool to this idea. So DD is mucking along with anything that requires writing, but a lot of other stuff about the class is great (including, generally, the teacher) so we're not complaining.