We have an individual that worked for a state government for much of 2001. He maxed out under the 457 plan. He quits his job with the government and is now self employed. Can he establish a SEP for the self employment during 2001? I don't see why not, but I am not confident with my knowledge about SEP plans.

Yes, he can establish a SEP.

Agreed. Assuming, however, the individual was never self-employed before 2001, he or she would have to use a "0" year service requirement to participate.