It is very definitely a legitimate learnig disabilty problem.
Go to www.ldonline.org
and enter Central Auditory Processing in search--you'll get lots of info, they have great supportive BB's (use the one called Parents w/Learning Disabled Children), ideas you can use to help the kid--there ARE things that can be done--how to handle less than cooperative school districts, etc., etc.
Also, check out the section called "LDinDepth". Lots of info! Really fantastic site.
On the BB I mentioned, look for posts by "pattim" [I think]. She's personally dealt w/this problem in herself and her daughter. Very nice lady who actually came to visit me and my son in the hospital. She had been working on her masters in speech therapy last I heard, but I've lost track of her. Maybe I'd better go over to that BB and check up on her.
Good Luck, and keep me posted.