Gosh such a lot of responses thanks everyone.
I have to admit that if someone asked me what to do about the same situation I'd say FGS make them participate, got to learn about joining in, supporting your house, that it doesn't matter if you're not sporty, people won;t think any different of you, have to learn to deal with losing etc etc etc. And for our older child I do stick with that (she is also spectacularly last at sports - as was I - obviously a family thing!), but she is a very straightforward, middle of the road child. A bit of a sheep, joins in with everything cos that's what you do, doesn't really question, just breezes along reasonably confidently. She does hate Sports Day too, but doesn't worry about being last.
Ds OTOH is a completely different kettle of fish. Thinks a lot about things, is very much his own person and quite aware ofother people's feelings as well as his won. All great qualities which we want to encourage, but ATM he doesn't quite have the self confidence to be himself IYSWIM. Socially he is actually quite popular, and learning about joining in with playground games even if he doesn't want to play whatever version of 'tag' the others are playing. But he doesn't feel particularly popular, having not quite grasped the fact that boys tend to have groups of friends while girls tend to have one best friend then a few others (and all the trauma that goes with that...). However he almost does have a best friend (somewhat engineered by me/circumstance/joint love of Mario Cart) so I don't want to paint a picture of a very unhappy little boy, but he is quite complex, with, I feel, quite adult emotions to deal with, but not the maturity to deal with them. I am confident (even if he isn't) that his self belief and confidence will grow over the next year or two, but honestly can't see the point of making him do something he is getting so stressed about.
I do take everyone's point about not lying to the school - I hadn't really thought that one through and I have to say I agree it's not a good idea. The format of the day won't change - it's been like this for years! It is actually a really nice, supportive school, but could do with a better balance of competetive stuff. I might take this further and suggest a different sort of public competition that enables children with abilities in other areas to shine publically....
I think the way to go is to suggest to him that if he feels like he has a head ache on the morning of the day then I'll consider him to not be well enough for school and keep him off (need to make sure dh goes though to support our other child ). I'm a bit loathed to bring it to his teacher's attention TBH - he will still have to take part, and if I phoned in sick she'd be somewhat suspicious if I'd told her how he was feeling.
It's not for another few weeks anyway so plenty of time to talk to him about it.
Thanks again everyone, much appreciated.
(Funny how many posters still remember the agony of the school sports day isn't it!)