unfortunately your are not his parent, and it is not up to you to disipline your nefew (although it sounds as if the parents aren't taking it as seriously as they should). the only thing you can do is to supervise the childrens interaction and make sure there is no physical agreession. definitely encourage as much time playing together as possible as it is good for both children (and may teach your nefew the valuable lession of sharing and protecting). talk with him about how he is the big strong protective cousin, and how when your baby grows older she will look up to him and want to be like him - so he can 'teach her things'. you need to make the baby a good part of his life rather then a competitor for attention.

as for him reverting to baby behaviours - this can be common in older siblings (although i have never heard of it between cousins before), there really isn't much you can do (as you are not the parent) other then ignore this behaviour, and encourage him to act like a 'big boy' or the 'big cousin', and maybe point out all the cool things 'big' kids can do that babies miss out on (riding a bike, eating ice-cream, colouring in and drawing, or what ever else you can think of). maybe he could draw a picture of him and his little cousin together?

hope this helps, they are all tricks my parents used on me an my siblings (i have four sisters and one brother and we were all pretty close in age).