So you think he can handle sledgehammer swinging, but not a punching bag? I'd say sledgehammer work is much more intense, even at its "easiest", than bag work.
Again, I have to disagree. It'll work fine at almost any pace with an overweight, deconditioned/beginner client. It's easy for him to adjust his own intensity and I've found most clients really get into the feel of smacking the bag around. Starting with a basic 1 minute "on"/1 minute "off" for 10-16 total minutes would be a start.
Other than that, I think bands and bodyweight exercises would definitely be the next step to add into his plan. He's already dropped a bunch of weight, so maintaining the diet in check and keeping a comparable time and intensity of training should keep things moving along.
Or, like Tommy mentioned, getting him someplace to keep walking indoors might be an idea. Mallwalking?