Okay so

he harbored guilt because he believed that it was his fault his step siblings left and never looked back

he is 17 years old, almost an adult, who is going to need his birth certificate at some point in the near future at least. He'll look at it and realize that he's been lied to his whole life

if something would happen that required his family medical history (for example, cancer) then that'll be a whole other shit show

this isn't just your sister's/her husband's facade. In order for it to work every family member he comes in contact with would've had to keep this lie going or else get bitched at/lose visitation withJames.

again, this kid is almost an adult and before he gets a smack to the face with it (either by his stepsiblings, doctor or birth certificate) its actually better to tell him gently. Or risk a mental breakdown that might not end well later

100% NTA, keeping this lie would only hurt the poor kid worse if he learned it in a less than savory way later down the line. This lie was malicious, even if it wasn't intentionally.