Toluene is more reactive in electrophilic aromatic substitution, so that could be the origin of your side product as well. I have use nitrobenezene for EAS reactions before with good results, but if toxicity is your concern, then this is not a good solution for you. Benzene is indeed toxic, and if you can smell it then you are above the allowable OSHA exposure limit, so you really should handle it in a hood and then put it in a closed waste container after the reaction to minimize your exposure. Personally I think benzene has gotten a lot more bad press for its toxicity than other comparably toxic materials, so I wouldn't fret about it too much and just use "normal" safe handling procedures.