Since you stated that the 1099-Q was issued to your son's SSN as recipient, you will have to include the distribution on his tax return...that's the good news.
Here's what I discovered with my daughter. The following are approximations: Total qualified 2006 education expense = $40,000. Total distribution reported on 1099-Q = $40,000. Earnings portion reported on 1099-Q = $4,000. Tax-free scholarship = $10,000 (25% of total expense).
So under the other income section in TurboTax, you input the data from the 1099-Q. Under the Higher Education Expense section you input $40,000 qualified expense, then you input $10,000 under tax-free scholarships.
As you probably know, you can take distributions for amounts equal to the scholarship without penalty, but you will still incur taxes on the gains related to those distributions.
When I looked at my daughters 1040, there was now an amount under other income of $1000 that represented 25% of the total gain shown on the 1099-Q. This all made sense to me based on the above. Next TurboTax asked if she qualifid for an education credit or deduction and if I input yes it said that she does not qualify because she is reported as a dependent on someone elses return...mine!
I played with the scenarios to see if the combined tax would be lower if I did not claim her as a dependent (don't really know if I have the option?), but in my case it was better to leave her as a dependent. Now the good news. I looked at the marginal tax rate related to the additional $1,000 other income on her return and the tax rate applied to those extra dollars was only about 10%. I'm sure it would have been much higher if I had requested the distribution be made to myself.
In your case, since almost 100% of your distribution will be taxable on your son's return, it may make more sense for you to not claim him as a dependent and explore additional education deductions or credits. He will alsostart off with a standard deduction of $5,150 and a personal exemption of $3,300!
One of the nice things about the tax software is that it lets you try different scenarios. Hope this helps.