For Students the DVLA site says:
Students who hold a non-Community licence or an International Driving Permit may drive here for up to 12 months.
Those who hold a licence from a designated country [ USA is NOT a designated country - Graham] may apply to exchange this for a British one up to 5 years after becoming a resident here (see Section 3). Students who do not hold a licence, or whose licence was not issued in a designated country, will need to apply for a provisional licence and then pass a driving test.
They will be able to take a test and obtain a full licence once they have been in GB for 6 months.
And for Residents
Provided your full licence remains valid, you can drive any category of small vehicle shown on your licence for up to 12 months from the time you became resident. To ensure continuous driving entitlement a provisional GB licence must have been obtained and a driving test(s) passed before the 12 month period elapses. If you obtain a provisional licence during this period, you are not subject to provisional licence conditions e.g. displaying `L' plates or being supervised by a qualified driver or being precluded from motorways.
However, if you do not pass a test within the 12 month concessionary period you will not be allowed to drive as a full licence holder and provisional licence conditions will apply.
If you do not apply for a provisional licence within the first 12 months you must stop driving and obtain a British provisional licence with a view to passing a driving test. Provisional licence conditions will then apply.
So what does that mean?
I read it than students and new residents can drive in the UK for up to a year on their USA license from when they first arrive. New residents can take a test as soon as they like, but students have to wait for six months of that first year. And I don't think it should leave anyone off the road or driving illegally. However, it isn't clear about people who change status, and it doesn't mention any concessions.
I'm sure the rules outlines on the DVLA web site are somewhat simplified (and I'm also sure that they have some advisers there who aren't 100% knowledgable on every rule so mis-advise will sometimes be given. Rules have a habit of changing so what was good in 2003 may be wrong in 2004 ...