The participant will not be 70 1/2 until June 2008. If he takes a distribution in January of 2008, that will count toward the RMD for 2008, correct?

Correct.

Your client has until 4-1-09 to take his 08 RMD but any distribution taken 1-1-08 or after counts towards 08. Distributions taken 1-1-09 thru 4-1-09 count toward any 08 distributions remaining then toward 09. Each year after 2009 distributions made in a calendar year count for that calender year.

Distributions are generally taxable in the year taken even if for a prior year requirement.

See IRS Pub 590 for charts and additional rules.

590 HERE
Pub 590 is 2006 version for now. 07 version will be added some time soon.

Complete regulations REGS HERE

Assuming the participant in question is still active and in a pension plan....are there new rules about inservice distributions after age 65 under ppa? Most of our plans do not allow inservice distributions so for participants who want to start right at 70 1/2, we wait until that month, rather than starting earlier in the year of, as is the case in the example above (which may allow inservice payments).