I'm not sure if I have an answer here. Only observations.
When I build a repeat grid based on a Report Definition and try to sort on that grid, this appears to issue the sort in the SQL itself. So the sort order would depend on how the database sorts.
I'm using Oracle for this test; You could modify the report so that you return the column with the Uppercase function alias. The sort will work in this instance, but this will mean the data is also displayed in upper case.
Conversely I'd also tried building the report using a Data Page.
Here when I sort this doesn't reissue the query to build the data page and the sort is returned in a case insensitive order for me.