Chiming in late here, but I think you've got a really good attitude towards this situation, and you're doing a great thing for Kyle.
While I think that it may be technically okay for a hypothetical host to prohibit guests from engaging in any religious practice not of the host's religion, I can't personally agree with that stance. I think a good rule of thumb is that as long as it doesn't disturb other people in the house, the host shouldn't prohibit it. So, saying "no burning candles/incense/herbs in the house" is entirely fair, saying "no praying to any god(s) other than the god(s) of the hosts" is overstepping.
I think the alter is a grey area. It wouldn't bother me (but I'm an atheist and pretty laid-back about other peoples' religions as long as they don't try to involve me), but I can understand how having a Pagan alter in the house might be problematic for a Christian (or observant Muslim or Jewish) family. If you can talk to Kyle once he's settled in a bit and come to a compromise on the issues of his religious observance (i.e., he only takes out his sacred objects and sets up his alter when he's praying), I think this whole religion issue will be settled just fine. Kyle sounds like a nice young man, and the OP and her DH seem like they're open and willing to accommodate his religious observance.