Yes, you will have to live in the property,
Yes, you will be liable for tax on rent received unless it does not exceed the amounts stipulated in the rent-a-room relief scheme (used to be about €7620, check with revenue for updates)
www.revenue.ie/pdf/it70.pdf for info
Your parents are generous. The upside for you:
1. No deposit saved? No problem.
2. Property declines in value? No problem, your parents take the hit (but see below).
The downside:
1. You use up your first time buyers stamp duty exemption, it won't be available when you "upgrade."
2. You have to live with someone else.
3. If property declines in value your parents may not sell and therefore you get no deposit for your new house. You could always move out and rent out the place to someone else. But do you really want to be a landlord?
Either way your parents' desire to help you out has financial implications you won't be able to get away from easily so you should be comfortable with this.
Do they really need you out of the house that badly