He is a bully plain and simple and it does not speak well for the future. Parents rarely realize that they actually end up teaching some of the bad behaviours - due to play fighting, wrestling, teasing, pretending to bite toes or nibble on fingers or nose, cute for a few months not when child is old enough to understand.

I believe in teaching kids to stand up for themselves in the face of bullies - not being the agressor or bully but in not taking it from a bully. That means your son has the right to put out his arms to stop the child from coming near him. When peers start to isolate the child it can be very effective too - you can then help them to see that our friends won't play with us when we are mean.

Call the behaviour mean and tell him we don't be mean to our friends. He needs to know exactly what the no is referring to. You don't say if he is an only child or not. If he is showing the same behaviours directed at his parents and not just peers then for sure you are dealing with a family that needs help. It is something they will need to address since they have more options for discipline than you do.

It also sounds like it wasn't an issue at home - assuming they were telling the truth and now it is. Something has likely changed and he is not happy about it. Finding out what precipitated the start might give clues how to change the behaviours too.

On a should child continue in care is up to you. If you can institute a plan so that he does not have access to any of the other children when you are not right there while you all work through the issue then it might be possible. If there is no improvement even with you and parents working for the next couple of weeks then it is likely time to consider terminating. I say a couple weeks because it gives you time to rule out teething, oral issues and that it is pure behaviour.