I regularly use Google Docs in my classroom. Not only is it engaging, it also teaches students 21st Century skills. I am always amazed when students ask me if they can take notes in Google Docs. Microsoft Word, what is that? Most of my students are so comfortable with docs that if you asked them if I had Word installed on my classroom computers they might not be able to answer. What do I think about my students using Google cloud computing? It is what they should be doing.
Google Apps for Education is free for school districts and currently nothing else can beat it. I do not feel like I am serving Google Koolaid because I am really serving 21st Century skills that can be readily applied to any Web 2.0 tool.
If you are interested in reading about how I use Google Docs in a high school English classroom, read the Official Google Docs Blog Post: The tool for the 21st century classroom.