You highlighted the wrong word. You shoud have highlighted Convenience.
If you are on an oil rig and living in the quarters that are provided on that oil rig the clause you highlighted applies. If you are living in a desert camp out at oil pumping station number 10, the clause that you highlighted applies. If you are living in a villa/apartment in the city that you are domiciled and that villa/apartment is either provided by the employer, or you are reimbursed wholly or partially for that villa/apartment it IS considered part of your income.
Typhoonpilot
I'm not sure that the issue has been fleshed out sufficiently for you to make that statement. 2006 tax returns (the first year for the new rules) are just going out and until there is a consensus of opinion by the IRS as to how exactly they are going to interpret the "convenience" issue it's up for grabs. There appears to already be some backpedaling as the IRS has shown a willingness to adjust the $11,500 housing exclusion for high cost areas.