This Reuters story doesn’t add up. Saif al-Arab al-Gaddafi is Gaddafi's sixth son, and is not normally heard from. According to Wikipedia, Saif al-Arab defected to the rebel cause and is appointed as a military commander in the army under the command of the rebel Transitional Council. If this is so, I seriously doubt he or his family live in Tripoli!
Saif al-Arab should not be confused with Saif al-Islam Muammar al-Gaddafi, who is Gaddafi's third eldest son, and is the one we see on TV reports regularly.
I think the most plausible explanation for this story being released by the Libyan government is to play for international sympathy and to try to divide the UN Security Council. I think Muammar Gaddafi was likely hiding out in his son’s former home in order to get away from Bab al-Aziziyah, which is a target NATO hits regularly. I expect NATO had some intelligence on the ground that verified that he was there, and decided to shake him up with a few Predator missiles. The news story relates how NATO also targeted a state-run TV station while Gaddafi was making an address there the day before.
I think NATO is definitely trying to shake Gaddafi up...good for them!