I used to have my daughter in a daycare, and when she turned 2, they had all the 2 year olds in the same room, whether they were 24 months or 32 months - and there's a lot of difference between a newly two year old and a nearly 3 year old. There was a nearly 3 year old boy who was bullying my daughter a LOT.
I grumbled and complained enough that finally they decided to go ahead and move him in with the 3 year olds (because my daughter wasn't the only one he was terrorizing - but she was often the target because he was a red-head, and had red-head siblings, and my daughter is a red-head).
Once they finally moved him into the 3 year old classroom, he quit. (What do you know?!!) But it pretty much took me threatening to "exercise other options" (pull my daughter out of the daycare) for them to finally do something about it because I told them I wasn't going to keep her in there and let her get terrorized by this boy every day. Also, I was observant enough to realize that she wasn't the only one, and they knew I usually dropped by every day during lunch (and I'd vary my lunch time on purpose to see what was going on over there) and was able to observe a lot of what was going on and talk to them about it.
As far as "rebuilding" his self esteem - something that's worked very well with my oldest (who is now 5), is that every night before she goes to sleep, I tell her that she did a really good job that day, and try to find at least 3 things she did that were awesome (helping her sister, eating all her dinner, being a big helper at the store, etc.), and that everybody loves her because she's so sweet. We might talk about who all loves her, or what she might have done at the store that was "biggest help", whatever. One night recently, she asked, "What'd I do good today, Mommy?" with a big smile on her face.
For what it's worth, and good luck!