Facts:
Person A itemized deductions in 2007. Received state tax refund of X.
Person B itemized deductions in 2007. Received state tax refund of Y.
A & B got married in 2008.

Filing together, TurboTax allows the import of Person A's 2007 return since they did it through TurboTax the year before. Person B used TaxAct so cannot import information.
Using TurboTax, they enter the two 1099-G forms. But since TurboTax only knows of Person A's 2007 Schedule A, it incorrectly calculates the taxable amount of the refunds as the difference between their total 2007 itemized deduction and the standard deduction amount (since this is lower than the couple's combined refunds).

How do you get TurboTax to know about Person B's 2007 Schedule A so that the calculation is done correctly?

This may be one of those times when you just have to manually over-ride the program and report the appropriate amount on line 10 of your 1040. The amount to report for each of you is the lesser of (a) the amount reported on your 1099-G and (b) the difference between your total deductions last year (your 2007 schedule A line 29) and the standard deduction (which was $5350 for singles). See the instructions for line 10 of form 1040, page 22:

http://www.irs.gov/pub/irs-pdf/i1040.pdf

I was afraid there wasn't an easier answer.
For both individuals, the refunds do not take their itemized below the standard, so the full amount is taxable.
I read somewhere that if you do an override, you cannot e-file. It will annoy my friend having paid $X for TurboTax and ending up paper filing...

One other thought - does TurboTax give you a tech support number where you can ask questions like this? I think they may have a Wiki or a user's forum - perhaps others have run into this same problem and there's a better solution than what I proposed.