When Bill Gates uses your product to teach his kids, asking for some grant money probably isn't much of a problem.
In the talk, he mentions that they're doing a pilot program with the Los Altos school district[2] as well, which I'm sure wasn't for free since it involved custom development.
[1] http://www.ted.com/talks/salman_khan_let_s_use_video_to_rein... [2] http://lasdandkhanacademy.edublogs.org/about/
The experience working with them has been fantastic. The teachers are fearless in the face of the significant uncertainty that introducing something like the KA in a classroom can create. They've been creative about experimenting with different ways of integrating KA into the classroom (trying things we didn't anticipate). Speaking as a UX designer, having nearly unlimited access to teachers and students for interviews and observations has been invaluable. Plus the teachers aren't shy about letting us know if something isn't working out. If anything, it feels like we should be paying them.
Is it mostly grant money that funds everything then?