It looks like I’m not as well informed as I thought.
There is a reference here http://www.awm.gov.au/atwar/remembering1942/timor/transcript.asp to Dutch troops landing at Dili in December 1941, so your grandfather might indeed have been stationed there.
Brad Manera has left the AWM, but the AWM is usually very helpful to people who want information.
You might find that the Australia-Japan Research Project part of the AWM can help you. http://ajrp.awm.gov.au/