Probably the best way to desensitize him to the show atmosphere is to just go to a few shows so that you both can watch and get used to the activity. I need to do this with my greenie as well. I'm planning on going to a few local shows and just leading (and riding, if he proves to me that he can behave) around the grounds and letting him get the idea. Some things that I find really send up red flags are loudspeakers/PA systems, flags/banners on fences, and strange horses, especially those that are much bigger or smaller than the one I'm showing. Sometimes show carriages and the noises that come with them can be unnerving as well. The best thing is to go to a few without intending to compete and just get a feel for the atmosphere and get your guy relaxed.
I'm not much help on show legal western bits. If your horse is over 5, I do believe that he's required to be shown neck reined in a curb bit. Unless you're using some really out there mouthpiece (i.e. Chain, etc.) you should be OK, but someone else please verify that... all I know of western showing is local 4-H
Good luck, and have fun!