[Feedback from the high school teacher who tried KSP]

I don't have time to write a big reply, but I've toyed with using it in school. You could have students plan out their rockets instead of going right to test flights. Have a list of the masses of objects, the specific impulse of engines (http://wiki.kerbalspaceprogram.com/wiki/Parts) and have them calculate the delta v expected in each stage. Technically Algebra, but fun nonetheless...

One thing I can suggest is downloading the Engineer mod. It gives many variables used in flight. For instance, during the rocket build you can see the delta v of your stages as well as gobs of stats in flight...

Group design of rockets is possible too...

[Younger Players be damned - Kerbal EDU to suffer? Future kerbonaught's concerned!]

I believe you can turn down the difficulty settings and negate certain forces on a per-save game basis. While in game ALT-F12 brings up a physics dialog where I believe you can limit even further...

[Launch and landing dust/dirt/ice scattering]

It would be cool to have dust scattering on the Mun (and other bodies) when landing and taking off. I'm no programmer, but based on other things the mod developers have come up with, I can't imagine this is impossible or even that tough... Thoughts?

Something like this?

http://youtu.be/e6GOe1qgtz4?t=1m35s