How much is too much?

Several manufacturers make a small road bike for kids, though at 5'1" he may fit on the smallest sizes of regular bikes too.
Trek makes the KDR
Redline the Conquest 24 (I'm 5'0" and I have one of these.... I did have to modify it a bit - longer stem because it is a little small, even for me)
Felt makes a 24" wheel kids road bike
REI has 24" kids cyclocross model too (cheaper than the others I think - maybe in the $400 range??)

new these are mostly in the $600 to $800 dollar range
They can be a bit hard to find used

oh! I think I found the perfect bike!!!
Fuji Ace 650 (its kid specific)
$380 mfg list (so Performance may sell it cheaper)
It has 650 wheels so it would be pretty suitable for a taller kid - there's also a 24" wheel version if that one is too big
http://fujibikes.com/2008/bikes.asp?id=512