I think this is a brilliant idea and is already being implemented by many training organisations through kaggle.com's "kaggle in class" program: http://inclass.kaggle.com/
Using this system for ml-class (and presumably the forthcoming pgm-class and nlp-class) would be extremely beneficial for real-world application of the information presented.
That said, learning what the algos are and how they work is one thing; learning how to actually apply them to real life situations is another thing. I think the class leans quite heavily towards the former, but I really love the few glimpses of the latter.
Personally, as someone who is new to the field (didn't do maths at college) & is barely fitting the classes & exercises around a fulltime workload & other things, I am glad that the programming exercises are "easy". Some of them are ridiculously easy, agreed (where 1/2 the solution is given basically verbatim in the pdf notes, and the other 1/2 in the code comments) - but for most of them I think it's enough to wrap my head around what's actually happening, especially in terms of the multiclass neural network assignment. That gives me enough foundation to try to apply them to real-world situations on my own time.