When I was a little girl, probably a year older than your ds, I suffered from nightmares. My dad made me a little wooden creature called "no bad dream thing" - it sat next to my bed for years and really cured me.
I think it can be anything: a cardboard cutout or even a photo album filled with soothing dream images that you can look at before bed and tell his head to only dream of these nice things. Any kind of little shrine you can set up next to his bed, maybe with some ninja character in the middle that you declare "the bad dream fighter." you get the idea.