Bubble-nests don't mean he's healthy or happy. Just means he's ready to breed.
Most of us here would agree that a larger tank is better for your fish. Five gallons, if you can afford it, is ideal for one Betta. Bigger means you can get him some friends (snails, shrimp) and is easier to heat and maintain. 2.5gal is considered a minimum.
(Experienced small-tank keepers: this is not the thread for the small-tank discussion)