Yeah I was pretty pleased with myself for finding that out. Told my husband and he already knew and apparently had told me about it - 15 years ago!! I can't even remember stuff from yesterday half the time.
It looks like you have to be really cautious about how you do it - i.e. education expenses you pay (not covered by scholarships etc) in the year you sell the bonds must exceed the interest amount in order to take the exemption. Still something we will be looking at closely. http://www.irs.gov/pub/irs-pdf/f8815.pdf