Apple's initiative is quite interesting and even promising.

There are several free books, lectures organizations that might make use of Apple's software. BoonBoon, CK12.org, Khan Academy, Flat World Knowledge. And depending on these organizations' copyright agreements, it may be possible to use these resources in producing derivative iBooks or curriculum in iTunes U. There are books offered on the CK12.org site that have links to some Khan Academy videos. It seems that school districts, schools, and individual teachers could build their curriculum by pulling resources from multiple open sources. I know teachers already do this the old way, by handing out photocopies during class.

To determine viability of this model, however, the cost of iPads need to be taken into account, along with any lowered expenses, and whether new curriculum would improve learning.

Would it be possible, using this model, to offer excellent curriculum and teaching and smaller schools, and better use of teachers?

As far as the EULA contract, it's perfectly reasonable. It's only controversial for folks who want to use Apple's products and the results of their innovations but don't want to pay for them.

Some folks have opined that the biggest negative to Apple's education initiative is the need for students to have access to an iPad, and some issues regarding the EULA licensing restrictions for creating textbooks using iBook Author.

I agree that these restrictions exist, but these are not the technical restrictions that are critical. The key technical restrictions are Apple's control of materials coursework that are allowed in iTunes U and restrictions on access to the iTunes U Course Manager.

Apple announced the new iTunes U app at its event, and several universities made available initial courses for use. Apple also opened iTunes U to K-12 schools to develop and post curriculum to iTunes U. But, unless a school district, school, or college acquires an iTunes U license, and the faculty/teachers get permission from their respective organizations to develop iTunes U courses, it won't happen. PS: You should note UW Madison has few presentations on iTunes U; MIT has material going back 40 years.

In this day of substantial frustration with K-12 schools in general, and the widening gap not only between students based on income, but the more objective standard of what the student knows and what they need to know (e.g., the need for remedial coursework in college and the widening knowledge gap between the US and other countries) it would be important to create a more open process to developing content.

Now, I suppose it would be possible for a collection of teachers, recently laid off, or new teachers unable to find work, to create a virtual K-12 school to develop an improved curriculum to solve today's educational problems, but it's not clear such a school would pass muster with Apple.

Of course, there is the critically important issue of course quality. For example, no course on history or evolution developed by, say the Texas school board, should be made available. That would simply allow continuing miseducation of the public, which is already fairly low (e.g., US history without Thomas Jefferson, and evolution as defined in the bible).

Likewise, if the curriculum in your current school district or school is poor, is there a reason to believe an iTunes U course developed by your school district or school would improve?

Though there might be promise in this new technology, it is technology only. If the marketplace of ideas is dominated by those who are ignorant and misguided, the technology will offer no solutions.