This was proven in 1976 - http://en.wikipedia.org/wiki/Four_color_theorem
This problem differs in two ways.
First, we're not looking for all of the vertices to be different colors. We're looking for them to not all be the same color. This is easier to do.
Second, he's not trying to color a simple planar graph. He means every rectangle on the grid -- for example, a 7 x 8 rectangle in the middle somewhere. This is much, much harder to do.
(To be fair, I made the same mistake on a first reading of the problem.)