Virtualisation is becoming more and more common, BUT that doesn't answer whether or not it was applicable or desired in this case.
Now - if the school have bought the 2012 server on the assumption that it'll entirely replace their 2003 server, then they've been mis-sold to.
In your post you say the GPO's/AD were in a bit of a mess. This can easily happen over time. You say the original OS was Server 2003 - so they could've had that in anywhere up to 10 years. Over that time it's perfectly possible that things were a bit bodged, and as time goes on, a clean start may well be desired. Did the school REQUEST a clean start, was it implied, and more importantly, did they pay for it?
You say "which is still in need of a rebuild" - So, I'm assuming there were/are existing issues with the 2003 DC that haven't been resolved by this 2012 Server install - if so, were you expecting them to have been, or were the school under the assumption that installing this new server would include resolving them? Or, were they fully aware that this was just a temporary fix?
Personally, I'm of the believe that virtualisation has it's place. But moving a 2003 DC onto 2012 and doing nothing else is a bodge BUT NOT IF THAT'S WHAT THEY EXPECTED AND PAID FOR.
I would not however consider this a "new server", and if it was me putting it in I would not sell it as such. I *would* however do it as a temporary fix (say for if the native hardware was dying and difficult to replace), or if I needed to buy a few months to investigate/fund complete replacement.
If the school are expecting their new server to last them 5-10 years, they'll likely be greatly disappointed. Updates for 2003 (which is the lowest common denominator) will stop way before they do for 2012, and you've stated already the GPO's/AD could do with a spring-clean. The new install is likely nigh-on useless now bearing this in mind.
Another poster mentioned the ease of VM'ing - I think that's exactly what's been done here, they've gone for the ease. Note - as I said - I'm not against virtualisation, far from it, but if what's implied here - the school have been passed off a 2003 VM as a clean install - then they've had their trousers pulled down.
Out of interest, what sort of cost are we talking, bearing in mind any monkey should be able to virtualise a server in half a day?