Yes, he MUST state that he can be claimed by another person even if you do not claim him.
If you (or anyone else) CAN claim him, as a dependent, he is not allowed to claim the stimulus payment.
Are you sure you paid over half his expenses, including grad school expenses. You don't say where he lives.
There are two types of dependents, "Qualifying Children"(QC) and standard ("Qualifying Relative" in IRS parlance even though they don't have to actually be related). There is no income limit for a QC but there is an age limit, student status, a relationship test and residence test. Only a QC qualifies a taxpayer for the Earned Income Credit and the Child Tax Credit. They are interrelated but the rules are different for each.
The support test is different for each type. The support test, for a QC, is only that the child didn't provide more than half his own support. The support test for a Qualifying Relative is that the taxpayer provided more than half the relative's support.
The support value of the home, provided by the taxpayer, is the fair market rental value of the home plus utilities & other expenses divided by the number of occupants.
The IRS has a worksheet that can be used to help with the support calculation. See: http://apps.irs.gov/app/vita/content/globalmedia/teacher/worksheet_for_determining_support_4012.pdf
Scholarships are third party support (neither support provided by the student or by you). Loans are support provided by the student unless you or the parent co-signed.
