OK - talk to him about sexual stuff, sure.
But be a secure model in his life by not taking advantage of him. So many other people will take advantage of him in his life, probably. Why be amongst them? Why not stand out as someone to have a sexual conversation with, without having "sex", or fooling around?
Just two guys talkin'.
Rejecting him now will teach your nephew that it's wrong to fool around with family. Incest is not a psychologically healthy practice, IMHO - an opinion I think most of us share, or learn.
This is his time to learn --
be the teacher, not a confusing exception. Maybe say, "Well hey, why do you like jacking it with men? Are you bi? Don't be ashamed to fool around with
friends--" etc etc....
^^^
There, now you have an interesting, family-bonding discussion to get into, and it isn't incestuous (or in my opinion, wrong).
So, I don't think you have to ignore what he's said to you (which I assume is what you're
really asking about), but you should act responsibly, and be the wise uncle instead of a horny paradox.
But maybe you already know that
