Do you know for sure what gender your bird is? And by that I mean have you had a DNA test done on either blood or feathers buy a veterinarian? The reason I ask is that regardless of how old your bird is, they can start exhibiting hormonal behavior at any time during their lives, even if they haven't and years and years, they still can start at any age. So if you don't know for sure that you're conure is a male, as there is no way to tell them apart just by looking at them, that means that there is still a chance that your bird is a female. And with all the health problems that your bird already has, the last thing in the world he or she needs is to start forming follicles or a eggs...That creates a risk of egg binding, and a host of other issues that male birds do not have to deal with. And even if your bird cannot see, it knows very well that it's walking through and sitting in a bunch of nesting material. And as noodles said, this will almost always cause or trigger hormonal behavior, such as what your bird looks like it is doing in that corner. I just worry about your bird having to deal with eggs. That could be very stressful on both of you.
The other problem/risk got any type of loose bedding like that creates is a huge breeding ground for bacteria, fungi, etc., Specifically respiratory infections and sinus infections. I would be very hesitant to allow my bird to be sticking his head down into the bedding on the bottom of his cage where he poops and where water and food collects... I'm sure that you're aware that all birds possess a natural survival instinct to hide any and all outward signs of illness and pain for as long as they can. So that means that your bird could very well be sick for months and months without you knowing about it, and that makes him breathing that stuff in very scary....and hopefully he doesn't eat it either...
It does look like he/she is "nesting", so I'd keep a close eye on him, especially if you have not had him DNA tested yet.