Unless your nephew was exposed to a toxic gas, such as "mustard gas", it is unlikely that his emphysema is related to his tour of duty. The first step must be for his doctors to achieve full re-expansion of his lung. Keeping it re-expanded may require surgical intervention. The treatment given will depend on whether his lung has collapsed from within, called atelectasis, or from without, called pneumothorax, with an air leak that fills the chest with air and results in lung collapse.
The second step, before doing anything else, is to be sure that the diagnosis is correct, on firm grounds. He may need a CT scan of the lungs.
If he truly has emphysema, he almost certainly suffers from an inherited condition called, alpha-1 antitrypsin deficiency. His doctors should check for this. Whether he has it or not, he should quit smoking completely and never smoke again.
To know how severe his lung problem is, pulmonary function tests (PFTs) should be done, after his lung has re-expanded and has remained expanded for some time, at least a couple of weeks.
What did your nephew do in Iraq? I ask because he is so young...I would think that it would take more time and exposure to develop emphysema but I could be wrong. Have the docs considered other health problems that weren't picked up earlier such as inherited disorders like alpha 1 antitrypsin (causes early emphysema), CF (cystic fibrosis) or other problems...I know there are others but I can't think of them now. I am betting that his collapsed lung was related to his emphysema....I would definitely seek out a pulmonologist in his case, someone who specializes in lung disorders to get better answers from. He or she would then run tests to see how severe his lung disease is, called pulmonary function tests. I am sure other tests would be run too, perhaps a CT scan, blood tests etc...I hope you get to the bottom of this, Sunny