Hi Cassie,
Sorry I'm so late to this. First of all, I'm really happy to read that you're feeling more encouraged and that your son has made a friend. That really does make a difference!
Second, I heartily agree with everything Cela has written. Fostering inner security and quiet confidence is critical as a prerequisite to allowing an emotionally "intelligent" adult to emerge. I've almost come to the point of feeling that this is as important as the academics themselves, but this is conditioned on the assumption that the child is given the freedom to learn on his own and isn't burdened by excessive busy work. I couldn't agree more that the school environment has an artifice to it that promotes a nervousness and instability in many, maybe even most kids. Some kids may be wired to ignore the odd and sometimes capricious rules and the institutional feel, but those who are more sensitive or aware may always feel discomfort.
For those reasons, I'd treat school--especially elementary school-- like an informal arrangement to the extent possible. Take your child out as much as you can get away with. Try to encourage social connections in small, non-school environments if you can find them. I love the idea of trying to find the smallest classes possible if that is an option for you. HUMANIZE the environment as much as you possibly can. You say the teachers are kind. Enlist their aid in fashioning the best possible learning environment for your son.
My own child is in a small religious school too. She's exceptionally lucky to have landed in a small core of HG and PG girls and she's even luckier to have a school that doesn't feel like a school. Parents have joked that it's "homeschool with tuition." Whenever she's had an issue of any sort, it's been easy to get a teacher or administrator to listen and fix the problem. I don't know if I would even have tried the first time around--I probably would have forced my eldest to conform and ignore the difficulty.
Susan