Yes, castling like that is an allowed move in chess 960.
By the way, try castling on move 1 in that game's starting position, that is also an allowed move 
Possible chess 960 issue
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The analysis board wouldn't allow castling until the knight was moved.
Yes it will. Have you tried moving the king onto the rook in order to carry out castling?
In a game I'm playing I was allowed to castle toward the a8 square even though I had a a bishop on a8. I didn't make the move, but in the analysis board the line can be reproduced:
The game is http://www.chess.com/echess/game.html?id=44524721#
Is this an allowed move in 960?