Maybe his funding will end in Oct 2007

Normally, H-1b is valid for three years. Since your boss is not sure if he can get the grant renewed, he cannot promise you to work after Oct 2007. If he gets the money renewed or receives new grants, you are OK. Otherwise, you have to find a new job.

Now, you should prepare two possiblities:
1) Your boss gets money and likes to support you
Ask him to extend your H-1b, if he does not take any action, you should prepare for leaving.
2) Your boss won't get money, even himself has trouble to stay
Begin to look for another job (same school is better). At same time, you GC application (if applicable).