I think the question is, what problem is it that Khan Academy seems to be solving? It may very well be a band-aid on the symptoms of our sick math education system. It might also be improving scores of students on exams.
I happen to be in the camp that HOW we are teaching and HOW we are measuring the learning of mathematics is the problem. We are teaching procedures simply to try to get the right data. We avoid actually teaching mathematics because the only real way to figure out what someone understands is to ask for an explanation and discussion and those results depend on trusting teachers to evaluate the understanding and assign a measure to it.
It seems that the best job we do teaching mathematics occurs at the lowest and highest extremes. K-3 elementary students, and Ph.D. Students. It's because at those extremes it's more about conversation than scores. Notice that no one gives Ph.D. students multiple choice quizzes.
Now back to Khan Academy, so this is how we are going to use this powerful computational tool to teach Mathematics? Watch video and take multiple choice quizzes? Anyone who thinks that's revolutionary doesn't understand the history of educational technology. This has all been done before, just not free. Free is the only difference between Khan Academy and all of the other previous efforts of using automatic quizzing systems and pre-taped lectures to teach.
I be a jerk to criticize Khan without offering an alternative. There has been a project happening at the University of Illinois for the past 20 years that IS revolutionary and does use the full power of the computer to change the approach to teaching math, AND flips the classroom the way Khan speaks of. It uses content written in Mathematica to approach the subject from the model level rather than the procedure level. It's simply too difficult for most people to understand models by doing hand calculations. However, once the models have been well explored and understood the procedures become trivial.
I am part of a project called Making Math to bring the model of teaching using Mathematica to the web using modern Javascript techniques. We're adding all the communication and feedback mechanisms as well as authoring and editing interfaces. BUT our motto is "if a computer can grade it, it's not worth asking." We feel that way because we expect explanations, and because at the end of the day, students want feedback from mentor, both help, and a pat on the back for a job well done.
(the one thing I like about Khan Academy is the marginalization of the lecture format and the flipping of the classroom. I just happen to think we can flip the classroom by engaging students in better activities, and providing a mechanism to explore and explain mathematical models).