I know several people online who have changed their older children's names, the kids were eager to do so, and actively involved in the process. Many kids who know they are getting new names refuse to answer to the old name...so its not always a negative thing or something the new parents push on the kids and the kids grieve. Sometimes it does allow the child to move on and start a new life, with a new name instead of holding onto a name given to them by their abuser (some kids are even named after their abuser.)
I changed my son's entire name. He had never been called by his birthname (other than perhaps once a month during visits but he was a newborn at the time), and it was not a name that i liked. However he will always know what his name was before we changed it (i have a copy of his birth certificate w/ the name on it, and saved every scrap of paper from the hospital and agency with his birthname on it), why it was changed, and if he ever wants me to call him by his birthname (whether temporarily as a kid or as an adult if he wants to legally change it back) i will do so.
I never thought i would change a child's name but my son's name was one that i did not like at all. I love my new foster daughter's name, it suits her, she knows it, and if i got to adopt her (not likely, the plan now is RU) i would happily keep it, though i would consider giving her a new middle name.
If the ONLY reason you would change your son's name is because another child in the family has the same name, i think i'd instead consider a derivative, or a nickname or initials or something...so if his name is Thomas James, and your nephew goes by Tommy, maybe your son could be Tom, or T.J., or Jimmy, or James, or just Thomas. Of course this is easier with some names than others! It also might be fun for them to share a name. Lots of families have dads and sons or sons and uncles with the same name (my dad is Jack, so my older brother was Jackie for years).
I dont have advice about how to tell the birthfamily or what their reaction might be. I was worried about that (though we werent really having contact w/ birthfamily at the time), recently i got an IM from the one relative who kept contact, and i just straight out told him we changed it. I'm thinking it didnt even occur to him that we *could*...he didnt say anything. So i'm not sure what he really thinks about it.
Ultimately, i think this is something that you need to decide, looking at the entire situation and the needs of your family and your child. Everyone will have an opinion, right or wrong. I was so offended when my son was nearing finalization and we went to urgent care to get a physical that was immediately required by the court...i told the nurse that his name is D. on the paper, but we've changed it to K. (didnt want her to get confused because i was calling him a different name)...she said "well you should probably consider keeping it as a middle name, so he'll know..." Grrr. Not her business. We'd been calling him his new name for about six months at that point. He WILL "always know" what his old name was, in addition to every single scrap of info i have about his life. When i have read in books about kids growing up and being scarred by having their name changed, it seems alot has to do with secrecy, with finding out when they are sixteen that they used to be "Susan" and now they are "Kate"...but i think that has way more to do with secret-keeping and the absolute damage it can do in an adopted person's life, than the actual name.
Katherine