But I'm telling you he is obsessed. When he's not playing it, he is playing make believe games where he is in Mario World. His teacher tells me he has made up a Mario game the kids play at recess, and he talks about it all the time.
We don't have video games at home, but DS5 can get this way about whatever it is that interests him at the moment. After he watched Star Wars, which I encouraged because it gives him something in common with his age mates, he talked feverishly about Star Wars for weeks, read Star Wars books, created his own Star Wars comics, drew countless Star Wars battle scenes, etc. It seemed to me he was more "inspired" than "obsessed," though. In fact, his drawing actually improved quite rapidly at the time, because he was making his first attempts to draw recognizable characters.
Is there some way you can take advantage of/build on Mario? Get your son reading again by finding some Mario books or comics? Have him design his own games on paper? Use this interest as a springboard to programming? Introduce some strategy games that don't involve the computer?
As for the books your son is bringing home from school, I'd talk to the librarian directly, show her what your son is capable of reading, and let her know that you're ok with him reading books for older kids. I think some schools/librarians are afraid to let kids read above their age level because they're worried parents will complain about inappropriateness of books' subject matter. For example, my DS5 reads 6th grade level books on Greek mythology, but his teacher, who encourages this type of reading outside of class, doesn't want the books in the classroom because they're considered too violent for kindergarteners, and she's worried some parents will object (incidentally, the same teacher later assigned an innocent story about a monster that scared my son so badly he wouldn't finish it!). Your librarian might relax her rules a bit if you give her something on paper (even just an email) stating that you won't hold her responsible if your son brings home something that might be deemed inappropriate for his age.