You are essentially correct. A 529 gets zapped twice in the aid formulas.
It gets zapped once as somebody's asset, modest if the parents and hard if the childs.
And 50% of the distribution, even it contains zero income component because a well meaning grandparent put it in a few days ago, gets zapped in the next aid cycle as support available to the kid.
MY ERROR . If the parent owns a 529 for the benefit of a kid down the street (or his adult child already graduated or his grandkid in diapers)then that asset which is not available in a normal context to the parent, gets tapped with that asset and lowers his own kids aid. Remember a 529 is a completed gift--but in that context it still has a tail which can burn you.
I might think long and hard about reporting a completed gift I had made to another person, not the person for whom the aid was being sought. It sort of depends exactly how the question was asked. No wonder parents have disincentives to save.