The key is to understand whether he can color carefully, but will not, or whether he cannot do it at all. Those are two very different situations.
Yes, and
His reading is at DRA level 40 and he is multiplying, dividing and doing pre-algebra for fun at home, so the work is well below his level. My gut says there is something not good about this situation, but I have learned my lesson to go to the school only with facts and research, not gut feelings.
I am going against the flow on this one... Coloring is a handwriting building exercise. Reading and math ability are not relevant. Is he able to color neatly? How are his fine motor skills? CAN he do a nice colored picture within the lines. (DS could not until after vision therapy. Coloring pictures was one of the primary metrics we watched for progress).
Yes.
Dexterity and hand strength are important for many things, not just handwriting. It's one thing if he's got fantastic fine motor skills and is just bored, but it's entirely possible (and very common) for him to be avoiding/rushing it because it's too hard for him. Teachers like crayons because you have to be strong to use them, kids prefer markers because they're easier.
My children and most of their friends have huge discrepancies between their mental abilities and their hand writing and fine motor skills, including delays and things which need therapy.