They can't legally with hold his diploma. They can refuse to give it to him at graduation, but legally they have to give him his diploma. I honestly would be contacting a lawyer if they don't administer it soon.
Secondly, we had beach balls as well, they were confiscated but no one was thrown out. I think it's a "tradition" if you will to have them, although I've never really enjoyed the whole beach ball thing.
Third, Freedom of speech was violated. He was 'thanking' his family and not allowed to graduate, a no-no!
That's all I can calmly write atm.