Sure, he went through the ceremony, but it was also used to punish. When he thinks back to it, he's going to remember the fact that he was denied his diploma.
Maybe that isn't as bad as being barred, but schools shouldn't use these life-affirming moments as punishment. Graduations, weddings, etc., are the only formal events most American's have to mark their lives. If someone earned the right to be handed a diploma, only a (numerous expletives deleted) would bar him from that because he chose to wear the wrong kind of tie.
I don't care if he sues, I don't care if they decide he isn't owed anything. People who so easily walk roughshod over the lives of kids need to lose their jobs, though, and if I were the governor I wouldn't be satisfied with less than seeing them in the unemployment line.