The lathe you've linked to looks pretty good, but I would say Cory's choice is the better bet. It appears to have a larger spindle bore, comes with a QCTP (among other things), and costs a lot less. Plus you can add on a collet set for pretty cheap.
The swing and center distance is smaller, but I doubt you'll be making 11" diameter parts or parts that are 30" long anyway. It's also lower power, but again I doubt you'll even be using 1.5HP with students running it. It's also easier to work with 120v single phase rather than purchasing even more stuff to get 220v.
The one you linked has an offset tailstock, which is a nice feature, but one I doubt you'll need it anyway.
Both show that the dials on the crossfeed are 0.002". I prefer 0.001" graduations, but it's definitely possible to just interpolate to that.
As RoboChair said, Craigslist is a good place to start. I got a medium-size garage mill with easily over $1000 in tooling for $1500. Bridgeports often crop up for less than $2000, less than $1000 if you're lucky/ patient. I'm on the lookout for a lathe for my team right now, but for $3000 I could buy pretty much any lathe I chose on there. My budget is less than $1000 for the team's lathe.
Like this:
http://sfbay.craigslist.org/sfc/hvo/5088337161.html
You would need to see it in person, but at a glance it doesn't look too bad. Sure, you also need to buy tooling, but it's got the QCTP already and as such you would just need workholders and cutters.
EDIT: 4 mills and a Hardinge for $7500 is incredibly good. Although the 100mi drive would have been a dealbreaker for me lol. I had trouble just getting the 800lb benchtop mill into the garage.