lurker, your last post is somewhat correct. The fund company needs to know whether or not the money coming in is coming from a qualified tuition program as a rollover (part earnings, part principal) or whether it is new money (all principal). However, when the distribution is made, it doesn't matter whether the distribution is qualified or not, because it is always a split of earning and principal. It's just a matter of whether or not the client reports the earnings as taxable.
Does this make sense? Have I explained it clearly enough?
For a client taking a non-qualified withdrawal and opening a new account for a bene that is not a family member, the contribution is brand new and all principal.
For a client changing beneficiaries to another family member, it is a qualified rollover and the contribution is a mix of earnings and principal.