Well you hope not do realize that the usage of computers in schools has changed and will continue to change. While I don't know the age group we are talking about here it is not to difficult to imagine a kid taking a photography class or having a video project to deal with. Even with these though you will not tax the iMac that much.
I liked your arguments about RAM and memory, but in my mind your suggestion to go low end with Apple hardware is a bit off base. You go up a model or two not for the RAM and disk space offered, which as you point out gets cheaper every year, but for the processor speed. Like video RAM not easy to update so it pays to get the faster machine if you expect to have it around for the long haul.
The question of course for this specific issue is just how fast will software and the users outgrow the processor speed of a base unit. The problem is you can't predict when or how that will happen, but you can give your self as much breathing room as possible. As an example some time ago I built up a Linux machine which I thought was a pretty good value even if the processor was modest. That Linux box worked pretty good through (1) one upgrade of the OS after which it was noticeably under powered.
Now I'm not trying to say that Apple will evolve it OS in a way that will outstrip the ability of todays processors to deliver good performance in 4 years. Just that you don't really know what will happen and the difference between the slowest and fastest processor 4 to 6 years down the road could be significant. Considering you can't normally upgrade an iMacs processor it is something to think about.
The original poster's question was about kids who will be in elementary school over the next 5 years. My 6th grader is currently having a great time playing with Final Cut Express on our 2yr old iMac -- far beyond anything required by his school. I realize schools are going more multimedia, but I'm confident today's base iMac will handle anything required of elementary kids over the next 5yrs. So here's my bottom line: if money is no object, by all means get the fastest possible beast ($2199 for the 3.06GHz with all the extras). But the base model ($1199) will likely be MORE than enough for young kids for several years. In 4 years, you can then take that $1000 you saved (perhaps doubled or tripled if invested in AAPL!) and buy something that will be far more powerful than the maxed-out system you could buy right now.
(I realize I'm not talking about gaming issues, but the poster was asking about schoolwork. If you want to run the hottest games at the highest speeds, then you'll absolutely benefit from the maxed-out system.)