Post edited 3:49PM – Jun-29-09 by Glenn

You and your friend ask a very good and somewhat difficult question.

I have done a small study of this same thing in a few other languages.

In many cases and uses they function identically. In general, the noun-based adjective tends to represent a more abstract idea, such as the entire class of noun. The possessive form tends to represent a more concrete relationship or an individual instance. There are also some cases where a small or significant shift in meaning takes place. (You can see that semantic shift in your example above of “official response” vs. “official’s response.” “Official” is a case of an adjective being used as a noun, so trying to use it as a noun-turned-adjective doesn’t really work: instead, the meaning of the original adjective comes back.)

Automobile insurance (general) vs. An automobile’s insurance (particular)
World peace (abstract) vs. the World’s Fair (concrete)
Water pressure vs. Water’s edge

There is also the question in some cases of true adjectives: water, water’s, watery; world, world’s, worldly; mind, mind’s; mental, etc. These tend to allow for uses that are even more abstract, generic, and sometimes emotive or symbolic — but not always. Sometimes they can be quite literal:
Watery grave (but “a watery drink”); wooden affect (but “a wooden shoe”); mental illness; worldly gain; golden opportunity.

These are very advanced topics for second-language learners. Ultimately, usage rules, and usage can be fickle.

Post edited 9:19PM – Jun-29-09 by Glenn

It wouldn’t be solved by particular vs general, or any other rule. This is a case where they are functionally equal — as is evidenced by the fact that states are split on the matter.

Nevertheless, I suspect that, even in states that use “driver license” in general, when things get very specific or particular, they might be inclined to switch to the possessive:

“Driver licenses are available at window 3.” (general)
“These three drivers’ licences are being revoked.” (particular, with emphasis on the drivers — as opposed to the equally valid “These three driver licences are being revoked.”)

I may be wrong.