Hi J.,
I think this is a completely natural part of life and its struggles -- even though it's heartbreaking! I'm reading "Nurture Shock" right now, which has a couple chapters that are very much related to this topic. Perhaps because he's always been smart, easy going and confident, this new feeling of being somehow 'not ideal' (even though he's obviously unchanged) is throwing him for a loop. Like one other person wrote, this is actually a good thing to learn at a young age. Kids do a lot better in life if they learn about coping, overcoming, even failing instead of ALWAYS being "successful".
Ok sorry, I realize I haven't actually answered your questions but I'm so excited about the book and how it relates, I couldn't resist giving my thoughts :)
I think the best thing to do is roll with it in a certain sense while offering lots of love and support. (Another good book: "Unconditional Love by Alfie Kohn.) Definitely avoid the negative comments when possible but not completely. Take the time to acknowledge how he's feeling to give him opportunities to talk: "It probably feels strange to have people talk about your size doesn't it?" Explain to him that people are making observations but that maybe they aren't meant to make him feel bad. That they simply might be trying to compliment his sister, not realizing it could be making him uncomfortable. (He is still her 'big brother' after all). Reassure him that people come in all shapes and sizes and grow at different times, but that he may never be very tall and that's ok! If he complains about outright meanness from other kids, maybe provide a few 'healthy', funny (humor can stop evil in it's tracks :) come-backs for him... even if he doesn't say them aloud, just having them in his head could give him a boost.
After the intial shock wears off, I think he eventually will be fine if he knows deep down he's accepted and supported by his loved ones and he realizes he's the same great person he always was! It can't be easy for either of you -- but he sounds like a kid that can overcome this!
Lastly, one of my favorite books as a kid was Leo the Late Bloomer :)