Most Apple refurbs aren't actually "refurbished", but are customer returns for various reasons. Other retailers might call them "open box"; Apple takes those units, checks them again, and puts them in the generic brown boxes and sells them for a discount.
I've done very well with Apple refurbs over the years. All my more recent Apple gear (PowerMac G5, 12" Powerbook, 3G 30GB iPod, 5G 30GB Video iPod) are all refurbs, no problems whatsoever. I've purchased Apple refurbs for various family members, friends, and clients, as well. Sometimes the education discounts or even the Amazon rebates make more sense, but Apple refurbs are generally the way to go if you want a bargain.
Sometimes with the refurbs you luck out and get some "silent upgrades". My PowerMac G5 was the biggest example of this phenomenon: it came with 1GB of RAM instead of the listed 512MB, a 250GB hard drive instead of the listed 160GB, and a Pioneer DVR-107 Superdrive instead of the standard issue DVR-106. More recently I got a refurbed Mac mini Core Duo for a client which silently shipped with a 100GB hard drive instead of the stock 80GB, and the refurbed MacBook I bought for my mom's partner shipped with 1GB instead of 512MB.
I do wish Apple would mark down the previous generation refurbs a bit more. I find the PowerBook G4s still cost a lot relative to the price of refurbed MacBook Pros. I'm sure they're still making a healthy margin on refurbed PowerMac G5s for those who can't cope with Rosetta for the next 6-8 months...