Hehe. When I was 17, Janimal was 12. We didn't really meet until she was 18, though. (I had seen her a couple of times when she was about 14, but we weren't introduced and didn't meet again for four years.)
As far as sex goes, I think Nixy's right. There's a line there, and he's on one side of it and she's on the other. But sex is only a factor if they're having sex, or wanting to have sex soon. If you could count on them to hold off until they're both on the same side of the line, it might be alright. Can they be trusted to behave? How strong are their feelings for each other?
These days we don't really expect high school sweethearts to last a whole school year, much less get married and spend the rest of their lives together. Still, I guess it could happen.
You might want to sit your nephew down and explain to him about the line, and about the legal problems once he turns 18. You should explain to him that people change a lot as they get into adulthood, and relationships don't usually survive those changes. Ask him if he really wants to commit himself to the relationship, or if it's just a fling. If it's the latter, maybe he should look for someone a little bit older.
At any rate, he shouldn't be having sex with her. Someone else said it's legal, but I'm not sure that it is. It may be different in different states, but I believe that Florida has a rule about minors needing to be within 3 years of age of each other. (That's for those over 12. I'm pretty sure that 12 and under is verbotten.) And legal or no, it wouldn't be right for him to take advantage of someone that young.
What do her parents think about her dating him?