First of all I would like to commend you on doing something few people can, that is step up when a perent steps out. This is wonderful. The next thing I would like to say is this. You nephew is not uncommon, nor abnormal, and you need to constantly remind yourself, and HIM, of this. Always trying to be positive about his situation is hard, I know from experience, but it can turn him into one of the most incredible humans on earth if you handle it right.
For one thing, it doesn't matter if he drinks at night. It is not a matter of his bladder being full or empty. It is a matter of his sleep being so deep that he is not aware of his urge to go. Yes, not drinking might help, but usually it just leads to frustration when he still wakes up wet.
Here is what we did, maybe this will help. For one, go to the hospital, or a hospital supply store, and get a couple of the bed pads that they use in the geriatric ward. They are not plastic, but rather a cotton front with a waterproof material on the back. The plastic backed ones make noise at night, keeping the child awake all night. Secondly, if he is comfortable using the pull ups then let him, who cares...and really whose business is it anyway? (wink,wink)
Next, dont reward him for dry nights with a dollar, but with reassurance, like "see I told you it will pass, and eventually this will be every night." The reason for this is that you are reaffirming for him that it is something he can control by rewarding him, but really it isn't something he can control. He needs your reassuring words and praise a whole lot more than a dollar.
Finally, put the responsibility of the matter in his hands. Remind him that he must clean up himself and his bed linens. That doesn't mean teach him to use the washer, but rather, just gather everything off the bed if it is wet, and make sure he takes a shower(put a temp regulator on the tub so it will only reach a certain degree). This gives him a certain privacy in a matter that can be so dreadfully embarassing. If he puts his clothes, sheets, etc. in the washer himself, then all he has to say is "Auntie, run the washer." This can become a code between you two that an acccident occured, but nothing else has top be said.
My daughter was nine when she finally passed this "problem". And two years later she might still have an occurance here or there. But I see that she is very sensitive to others and the difficulties they face, and almost always finds solutions which are in the comfort zone of the person with the problem, like code words and such. It has opened a door for her, and it can be a door for your nephew as well, as long as he thinks that your okay with it. Kids are funny like that, if your ok then they are ok too.