I think you already know deep inside what you need to do. And while your son may know about this age limit, having fun, etc. he is doing so under the muse that as long as you think it's ok, then it's ok to break some little rules to get what you want.
In my opinion (and I say this as a Dad), you are setting a very bad precedent for your son even at this early age. Heck, I'd say the same if he was 6. I mean, what's right is right and what's wrong is wrong. I personally believe that the foundation of our great nation is built on the truths and integrity of great men in the past. While I can't change what others do with their kids I CAN influence what I teach my own. And it starts with the little things.
I know you (and maybe others) may view this as "hey, it's just baseball" but I think you're teaching him a far great lesson, albeit, a bad one that will stay with him AFTER the season is long gone in the rear view mirror.
I remember telling my son back when he was 10yrs old and play s****r (communist kickball) that if he didn't get his grades up by a certain date that I would take him off the team. He was out in practice and I waited patiently for practice to end. When it was over I told him to go and inform the coach that he would not be returning because he had not gotten his grades up in school like he said he would. A hard lesson, yes. But he learned that day 2 things: 1- grades were of the utmost importance and 2- Dad meant what he said.
I think you would do your son a great service by sitting him down and talking to him about this entire situation and even admit that you were wrong in allowing it after learning of the age issue. But that doing the right things in life are way more important than a game of any caliber. And with that, you might even ask him what he thinks the right thing should be done. Help him with that. So that he even feels good with having learned a little and making an informed decision.
Now I apologize for replying SO LONG. lol
Good luck!
YGD