Just so I'm clear on what you're asking about: you want to know about drawing down the 529 account before you apply for financial aid (with the money going to increase the equity in your primary home), so that you have fewer assets on hand to figure into the FA calculation?
Three semesters worth of 529 qualified expenses could be as much as $90k, so if you assume parent assets are assessed at 5.6%, that's potentially $5k or so in additional need-based aid.
I don't think there's anything wrong with this strategy, as long as you understand the pitfalls (and it sounds like you do).