Art,
At first glance LiveCD is an interesting solution. But the problem with it is that I want to be teaching (and learning) Python, not Linux. I don't think it will work to take a student whose background is in Windows, throw him/her on a Linux box and say, "Let's write some Python!"
Are you sure? The beauty of a focused LiveCD is that the desktop can be configured specifically to the targeted task. One icon. Push it. IDLE fires up. In the simplest case. But in any case it is all graphical and should not seem tremendously unfamiliar. In short, I think the fact that you can be working from a focused, uncomplicated, custom graphical desktop is a plus, not a negative. The issue that I see is a way of saving one's work. Mounting the Windows drive in an appropriate spot. I frankly am not far enough into it to understand what the possibilities are here. Art