Yes, you cannot e-file a state return without a federal return.
If they have a 1098T with income Scholarships greater than the tuition, then yes, this would be considered income and need to be entered on the return. This could also be subject to the kiddie tax, if it is more than $2,500, since this is unearned income, so depending on how much more the grants and scholarships were than the tuition and expenses, they may or may not have a $0 return.
Are you claiming them as a dependent and claiming the education credits? If so, you will both enter the 1098-T on your returns. You for the credit, them for the taxable income. You can claim enough of the tuition and fees to claim the credit and then they will claim the rest of the tuition and fees to decrease the amount of taxable income. See the answer by Champ Hal Al for a detailed explanation on how to maximize your credit and minimize their scholarship income.
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