If I'm reading this right, then no 8th graders made the team. So he was merely denied an opportunity to "play up." Sounds like the door is open for next year and he generally made a great impression. Lots of positives to take from the experience.
That being said, it also sounds like both you and he know what he needs to do to be ready next year. Hustling during tryouts is a great thing. Doing the off season work to be ready for tryouts is what could make the difference between just making the team, and getting to play or even start.
# 1, he needs to get healthy.
# 2, when that happens, he needs to get himself in shape.
I've got at least 30 extra lbs. myself, so maybe I'm one to talk, but then, I'm not trying to compete with 15-year-olds on an athletic field. That's like trying to compete with a sack of potatoes strapped to your waist, and some more junk strapped to each thigh. The best thing your son could do is, whenever he puts the OS problem behind him, start pounding the pavement. 1 1/2 to 2 miles, 5 times a week will melt that stuff off him in about 4 months. He'll be glad he did it for a whole lot of reasons, including but not limited to baseball.
You may also want to get him a head start by talking to a personal trainer about cardio work he can do that won't slow his recovery from OS. That way his heart and his diaphragm will be more ready when his knees are ready. Taking some of the load off those knees before you start pounding pavement couldn't hurt, either.