I don’t think you’ll find too many issues with 17-year-olds in dorms. I was 17 when I started college, and was far from the only one – different states have different cut-off dates for starting kindergarten, and even though these students would be on the young side, it’s entirely possible to start at that age and live in dorms.
I think dorm availability in the spring is a bigger issue, although that depends entirely on the college.
The bigger issues, I think, are the following:
• Just because you can graduate after junior year, this doesn’t mean you should. There are lots of benefits to staying for senior year, including continuing with advanced coursework to prepare for college and gaining another year of emotional maturity (it’s become more common for kids to start kindergarten late than early, so there will be a lot more 19-year-old freshmen than 17-year-olds – therefore, the younger frosh will seem younger still).
• Lots of bonding happens during freshman orientation and in freshman dorms, and unless a college has special programming for spring starts, your kids will miss that. Combined with the younger age and perhaps not living in a freshman dorm/hallway (because spring starts are housed where there are rooms available), it may make it harder to fit in and find their people. Lots of other benefits to starting in the fall, including a more complete orientation program, club fairs, etc.
• If their academics are solid, a strong performance in fall senior year course work can open up more opportunities for admissions and merit aid. Also, they’ll have more chances to get to know their teachers better, which is a good thing overall, including for getting quality rec letters.
In general, four years of high school are better than three, for academic, psychological, and social reasons, but families’ needs vary.