Can someone point me in the right direction . . .

A publicly-traded parent's subsidiary wants to offer employees options on the subsidiaries shares. The sub is owned 100% by the parent. The sub will have the right of first refusal and must consent to any sale to a third party.

Are there any decent sources that discuss the securities laws aspects of this type of arrangement?

Incentive stock options are considered a piece of the compensation pie on the menu of compensation & benefits issues. You will find some sources at:
NCEO links page http://www.nceo.org/library/library.html
FASB: http://www.rutgers.edu/Accounting/raw/fasb/ http://www.rutgers.edu/Accounting/raw/fasb/public/index.html (Current status of FAS123)
Other http://www.acaonline.org/acahomefra000000.html
Services: http://www.stock-options.com/ http://www.stockcompensation.com/ http://www.cmsoptions.com/prod/op.htm

I am a little confused by the facts in your post.
Is the sub really going to issue stock options in its own stock (this would be very unusual for a sub that is owned 100%)? Or the sub going to issue options in the parent stock (this is usually what happens)?

No, it is not the usual facts where the sub offers shares of its publicly traded parent.

The sub wants to offer shares of its own stock. It is anticipated that there will be an IPO of the sub's shares in the next 12 - 18 months.