I know some higher education instituations have gone for Google. There are some issues with it though. Firstly it isn't Free Software. Or Open Source for that matter. It does support open standards becuase it uses ODF format which is a good thing. It isn't 100% reliable and neither is the connectivity between you and Google. However I don't personally think that is a big issue in itself, it is quite reliable. More to the point the reliability is outside of your control. If it should go down you can't do anything about it other than wait (wihch some people are quite happy with - I like to have things I can fix myself) The fact that it is an American service means the data is transmitted and stored outside the EU which I think should be a legal problem (depending on the data), but I think these are laws that almost everyone ignores.

The cool thing it does give you is collaboration. You can co-edit a document really easily then take it out in ODF format for final formatting in OpenOffice.org.

From an educational point of view another side benefit is that all the students get an OpenID account so you can do single sign on for all other applications and just get rid of password problems to Google.

Google are, of course, great supporters of open source development, perhaps particularly through their Summer of Code internships for college students, although, alas, the Google Apps suite isn't open source itself.

Merlin John has an article about Cottenham Village College's use of Google Apps, which might be of interest.