What was the significance of the tire iron?

I think you have answered your own question quite well. Quite possibly the drive of Jacks sexuality in his later years caused the the element of people Ennis explains about to become aware of his (Jack's) sexuality.

I believe the tyre/rim explosion is a convenient way of not having to say over the phone (especially when and where the film is set) we all know he was viciously beaten to death for homosexuality.

If indeed he was changing a tyre by the side of the road he would have had a wheel brace or jack handle near by which would cause the injury's Ennis had seen in his childhood if the wrong element had recognized him or if he hit on the wrong stranger.

Furthermore the death is explained as happening on a back road away from town which would bring back memories of a lonely irrigation ditch miles from anywhere and a known homosexual deliberately taken out there and beaten to death with any heavy object at hand.

Or a tyre and rim exploded in Jack's face and: "Ennis was so traumatized by the event from his childhood, that he thinks that if a homosexual is discovered, that they would automatically be beaten with a tire iron" Like you have stated.

Aside from asking Annie Proulx herself we may never know completely, however I believe her answer in an interview gives away that Jack was indeed killed rather than died in an accident. To quote an Indepentant.co.uk article Annie Proulx herself says the following:

“So they rewrite the story, including all kinds of boyfriends and new lovers and so forth after Jack is killed. And it just drives me wild.”

The key here is the Killed and not died. Although this could simply be a choice of words as either would be correct.

You can read the article here.

Jack's widow gives Ennis a tale that obviously is far-fetched and implausible. A medical examiner would have ruled whether the death was accidental or foul play. Perhaps the authorities were paid off to report the death occurring the way the widow or more likely her father purported. Her toneless, unemotional way of reciting the lie in the phone call would prompt Ennis to flash back to the murder he encountered in his boyhood. The imagined tire-iron scenario, in turn, would give Ennis justification for his having ducked commitment to Jack over the decades. But is he left with guilt or just frustration that his cowardice deprived himself of love? "Jack, I swear...." What was the rest of that thought?