E., I know you want to help your nephew, but you can't sacrifice your own kids to do that. Your nephew is setting a bad example for them, and that should not be tolerated. Where is your husband in all this? Have him step in and help resolve the situation. And where is the mother? Is she still controlling the nephew? If so, it's time he woke up and smelled the coffee. He's really got to face reality.
I would sit down and have a serious talk with your nephew and anybody else involved - your husband and his mother. If your husband would do it, I would have him talk to the boy about sex and how even with condoms it's best saved for marriage and when you actually want kids. Lay down the rules very clearly and establish consequences for violating them. He may have to leave your house if he can't live by the rules. Don't waver - you don't want to pull down your own household with his nonsense. Help him if he wants to get ahead, like helping him with his license, but if he doesn't want to be responsible you can't make him. Not wanting to and not knowing how to are 2 different things, of course. If he doesn't know he can be taught.
I don't know your religious beliefs, but I believe a good Bible-believing church could help you out with this. He could benefit from counseling -whether church-based or outside - to help him recover from the skewed life his mom handed him. Good luck with all of this!