In thinking about it, if it were my stave, I would punch out the nail so you can tiller properly. I would leave that area a little stiffer than the rest of the limbs. I've seen plenty of knot hole bows though I don't think I've ever made one. But I've made bows with plenty of punky knots.
I would also get yourself a dowel maker of the paper diameter, make a dowel and glue it in with a waterproof wood glue. That way you can punch out a nice osage dowel. If you don't want to do that then just bring the nail to a hardware store and buy an appropriately sized dowel.
Osage doesn't take well to violations. I'm conflicted on the rawhide backing. At least with a knot the wood has compensated properly with grain lines running around the knot. It may be needed. Don't know.
Jawge