We encountered success in a strongly mixed-ability 4th/5th class in a public school. The principal was strongly committed to "pushing in" so that to the extent possible, she put all her resources into the classrooms - no pull outs for anything. As a result, the class had 27 kids and two (talented) full time teachers, plus a student teacher, and various specialists coming and going, as well as 1-2 aides. Having 2 full time teachers plus help makes a huge difference in being able to differentiate. For example, our twins read The Hunger Games with their reading group as 4th graders in that class, but there were also kids with severe developmental disabilities.
This, with minor differences, is the plan our district follows. I agree, it can work out well, though I think it is essential to have excellent teaching and at least a few near-peers. (Great when both happen, not so much otherwise).
Also, obviously this model falls apart when kids get to later middle school and switch classes/teachers- this is where our school model falls apart, in 7th grade where everyone switches classes but there are no accel/honors classes yet. So no differentiation as each teacher has 90-100 students, yet all abilities are lumped together.
