IMHO he really needs to not be with that teacher. I think you need to tell the principal everything you have said here and make it clear that your son will obviously not thrive in that situation. Would there be anyway to move him up a grade? Perhaps not officially but it isn't difficult to teach down to one or two kids in a classroom. He could use the books from his current grade, but be with a different teacher. I think even an undifferentiated non-gifted class would be healthier. He'd have to deal with boredom, but not being given up on...
I should warn you that I can be VERY mama bear... I mean no offense to any choice you make.
