I'm not a fan of the hard rubber balls or volleyballs that are used sometimes, foam balls won't give you a bloody nose if you are hit in the face with one.
Would it be an issue to separate children and let parents choose which sports they play in gym class? I remember we had to play with scarves in elementary school because dodgeball was too "dangerous". SCARVES. THROWING SCARVES UP IN THE AIR, WTF.
If fun activities are taken out of gym class then kids will not want to be active, and that's much more dangerous than the occasional bloody nose or busted lip.