In fact, since we have started doing this in the U.S., the rate of SIDS has dropped dramatically. Thus, the answer to your first question is that yes, he should sleep on his back - there's no question that it's safer.
This does not mean, however, that his head has to be perfectly centered while he is sleeping. It is fine to turn his head a bit to the side so that all of the pressure is not constantly on the same spot on the back of his head. Alternate this so that some days his head is turned to the right and other days it's to the left.
You can also give him opportunities to be off of his back when he is not sleeping. An infant swing or carrier will give him some time in a semi-upright position, and thus take some pressure off the back of the head. It is also fine to put him on his belly to play and look around when he is not sleeping.
Most children's heads appear "normal" as they get older. Rarely, there are some infants who seem to have more significant flattening of their skulls in the back, that may not always correct itself as the child gets older. In these severe cases, some neurosurgeons recommend using a special molding helmet for the baby, to help correct the deformity. Talk with your baby's doctor if you think the flattening is not improving.