As far as potential uses go a campus for Menlo School is a great idea (or for the Menlo Park School District for that matter).
There's a downside for the city's coffers. Since schools are exempt from property taxes the loss of the current tax would be a negative for Menlo Park balance sheets. This would be on top of losing a major sales tax supplier this past year.
I'd like to see the campus preserved. However we have a poor track record on Willow of demolishing award-winning low-impact campus-style architecture (the former AT&T research facility) for housing.
The intersection of Willow and Middlefield must be one of the worst intersections in Menlo Park for traffic. Traffic engineers classify this intersection as a 'D' or an 'F' on a scale of A-F.
Sunset has been outstanding in organizing the event to minimize impacts. As far as preserving the 2-day Sunset Weekend that occurs every May, it lost its novelty long ago.