That is ridiculous and should never have been allowed to happen. Preschoolers misunderstand things so easily. Not only should the teacher have made sure each toy was with it's owner, she should have explained up front there were no trades nor should the class have been allowed to play with the toys. This is actually why toys should never have been brought for a show & tell. The school my children go to, including the PreK that my youngest goes to, discourages bringing toys to school for this very reason (whether for show & tell or not). When it does come to show & tell, they're asked for items they've made themselves, memorabilia for vacations, etc.
That boy has learned a very bad lesson from his mother and I hope she realizes this while he's still young enough to rectify it. It's never ok to steal another persons possession, no matter how much you desire it. Nor is it ok to lie about it. :(
We ran into a similar problem with my youngest son. He was showing up with money (nothing much, just change) but we knew it wasn't his allowance. We asked him about it but he wasn't very forthcoming. Then he showed up with a half dollar. So we sat down for a big family meeting and he explained that another boy didn't have a snack so the boy was paying my son to have part of his snack. When we explained that it was great he was sharing, it wasn't very nice to accept payment for it, even if the other child offered it he felt bad about it. So he's donated the money to our Church. He at least learned a lesson through this and it seems your nephew learned a painful one as well with his experience. :(
I hope the school rectifies their part in this because we can be reasonably sure the other boy's family, from their actions, will think nothing of it and may feel the victims here.