I'd love to hear some legislators from whatever state did that first explain how that makes any sense. Once a few do it, I guess I get that others feel compelled to do it to keep up, but still...kinda messed up.

The need-based aid stuff just kinda is what it is. It's a disadvantage for VT against some schools (although probably not a big deal against most of the elite programs), but there's really no other way to have the rules. Athletes can get need-based (or academic merit-based) aid according to the same rules as any other student.