Driving without a vehicle without a valid MOT certificate is a non-endorsable (and, to the best of my knowledge, non-arrrestable) offence, which is usually dealt with by a £100 fixed penalty.
If your son is still on licence after his release from prison he can theoretically be recalled to prison for committing any offence, which might explain why he's being held by the police (while they check to see if he'll be recalled), but I can't see that happening just for driving without an MOT. It's probably more likely that he's been arrested for another offence (such as drink-driving or, if he's into drugs, for possession of them).
There have neen many conflicting posts on AB about whether or not driving without a valid MOT can invalidate insurance. My own understanding though is that, as far as the third-party cover required by law is concerned, the insurance remains valid.