tedster - 12:17 am on Apr 10, 2010 (gmt 0)
Google absolutely knows the .edu pages can be manipulated. They also know that in recent times edus have been hacked, in mass quantities, for parasite hosting. Students and faculty here and there have also been paid off to host splogs that get folded into link pyramids and so on.
Matt Cutts has repeatedly said that the Google algo does not look at the TLD as a factor. Google's current metrics for trust, authority, relevance, etc make that approach look very "90s".