"Du isst mit den Großeltern."
It wasn't marked wrong, but is using ß considered more/less formal than using 'ss'
It's not more or less formal. There was major a spelling reform in Germany some years ago - it started in 1996 and then there was a "reform of the reform" in 2006. "ißt" is the old spelling, "isst" is the new spelling.
For more information on the spelling reform, see: http://en.wikipedia.org/wiki/German_orthography_reform_of_1996
when hearing it, i translated it in my brain as 'You eat with the big parents'