Honestly, you probably need both and if you can only afford one you might as well buy MS Office, bearing in mind that if you want Office 2007 you will also need to buy a copy of Parallels/VMware and Windows XP so even the student edition of Office for Windows will work out very expensive. The student version of Office 2004 would be the most cost effective but it can be quite slow on an Intel based Mac and you don't have time to wait for Office 2008 which won't be out until next year.
iWork can save in the Office formats and does a pretty good job in my experience but it can often be necessary to load the result in Office and make some final tweaks depending on the formatting. Of course, formatting doesn't necessarily survive from one copy of Office to another, especially between generations. I can reasonably well share docs between Office X and Office 2000 but do find that the results, particularly with PowerPoint, can be quite variable depending on how the versions interpret the order of style applications for instance. The Office document format doesn't entirely dictate what is presented on the page it seems. Much of the presentation is down to the internal workings of Office which is why you should really never expect an Office document to survive intact when you share the file with someone else. The only way to reliably share documents and have the presentation survive is to use PDF. If you can use PDF then there is no problem using iWork as its PDF export is as good as it gets. If they insist on files in Office format then they are a) nimrods and b) probably going to blame any formatting problems on your choice of software even if you are using Office for Mac.
In the end, you should realise that there is very little you can do to change the way people use Office formats and you can't fix the fact that the formats are fundamentally broken and MS likes it that way. If your school is reasonable and accepts PDF then you are golden, otherwise welcome to my world where I currently have Office 2K on Windows XP Pro under Parallels, Office:mac version X, NeoOffice 2.2, iWork 08 and even a copy of AppleWorks all on my MacBook Pro just to make sure I can successfully work with other people's documents.
When it comes to my own documents though, I use iWork since it is so much nicer than any of the other packages I have.