I am sick to death of teachers being so blind to what dyslexia actually is!
For the record, a good analogy is that your brain is wired differently, it's like the difference between a an X86 PC an a Power PC. This can have a very wide verity of effects, sometimes causing a fairly big and across the board impairment, but more often causing you to be biased to a certain subject group, there are more ways it can work.
My father and brother are both diagnosed with dyslexia, I have not been tested. But all 3 of us work in the field of engineering. Whenever My father attends FIAT's top technician competition, the 3/4 of the finalists turn out to be diagnosed dyslexic.
When the "learning support" teacher at my school suspected I might be dyslexic he decided to give me a dictionary where the words are arranged by sounds not 1st letters, and tried to introduce it by having me spell "pneumatic". I spelled it correctly without the stupid book and never went back there again. Probably had more to do with the way he would talk to me like I had the intelligence of your average Labrador.
Another problem is dyslexics who are smart enough to blend in with the crowd, who would be top students if they received the correct kind of support.
Taking away his toys is the wrong approach, he doesn't bunk off to play XBOX, he bunks off to avoid school, which is hell for a dyslexic. He will just find something else to do when he's playing truant. I like the idea of a reward, something nice for attending school for the whole week, that will get him in. You also need to make sure he's getting the right support, otherwise you're getting him to attend a school which he will learn very little from.
Later, offer to pay for lessons if he goes to School. If all is well the progress in learning the guitar will make him feel better about himself and be less concerned with the bad points of school. Could work 
