I think the reasoning is if the student moves away from home, then he wouldn't be assessed on parental income and might qualify for a grant on that basis.
Slim, there is some information on the 2011/12 grant system here:
http://www.citizensinformation.ie/e...emes_for_students_on_third_level_courses.html
My reading of the paragraph on Means Test is that it's where a student is living on October 1st of the year prior to entry on the course that determines how the student is means-tested. So in your son's case if he started college this year, his residence was determined based on where he lived on October 1st 2010.