We love him dearly and don’t want to upset him or harm our relationship. How should we handle this?
If your nephew knows your beliefs, and it's likely he does, he is disrespecting you and your husband. Any guest in your house should honor your beliefs. When they are somewhere else, they can do as they please. Sit with him and tell him how much you love him. But also tell him that you would appreciate his respect for your beliefs. They are welcome in your home as long as they sleep in separate rooms. Then the choice is theirs.