Sounds like he's not ready to be with you, if he's still clinging onto the girl and uneasy about the idea of the two of you together in public. I wouldn't tell her, honestly. At least not until his feelings are sure. If you tell her now, you'll probably lose her as a friend, and you might risk losing him, as well.

I've seen the "Oh god I'm not gay" thing happen, firsthand, on many an occasion. I'd hate for it to happen to you, OP :[