The new page for Google Apps for Education site is actually informative (in contrast the previous one). The answers to the potential show-stopping problems I saw seem straightforward:
- Ads: Optional.
- Archiving to meet legal requirements: run everything in and out through a gateway you control that handles the archiving (keeps a copy of everything, even if the user deletes it from GMail).
So this means a school can't completely eliminate their in house email infrastructure, but it is limited to running the gateway & archive system, plus any additional filtering or monitoring the district might want to insert at that point. Besides, considering the legal liabilities in play (violating public records laws, etc.), I don't think you'd want to rely entirely on Google for archiving.
I'm focusing on GMail, because it just seems like running email in particular is an ever increasing drain (due to spam, etc.) with very little value-add for a district. Schools should focus on things more closely related to teaching and learning.