Does military tuition assistance count towards box 5 in a form 1098-T?

Yes, it does count, although it is often not listed in box 5 of the form... When going through the interview, once 1098-T is entered, you will be asked if you received tax-free employer-provided assistance. Select Yes and enter the military tuition assistance there. 

How does this work when active duty member also received pell grant?  Active duty member receive XXX amount in pell grant, which is correctly listed in box 5. but received XXX in tuition assitance which exceeds the pell grant amount.