In theory this can work well. For us it worked great as a 1st/2nd grade thing, but it was not so hot as a 3rd/4th grade thing.
We transferred DS from private school to public after 1st grade. We weren't sure whether to have him repeat 1st grade or not. The principal said to enroll him as a 2nd grader, let him take the assessments, and have the teachers determine where they thought he would be most comfortable. Since the kids were all mixed together all the time nobody really knew who was technically in what grade, so no stigma about being "left behind". DS did great as a 2nd grader and moved on to 3rd, along with all the other kids who were 2nd graders. So when you finish a loop you still have half the familiar kids moving up with you.
In 3rd grade it gets down to nitty gritty on the state tests, and they can't group the kids by academic ability anymore. They have to be grouped by chronological grade level in order to focus on the skills for their state test, so they were only mixed for homeroom and specials. Sort of defeats the purpose.

But they still had the same teachers for 2 years, which was not so great. DS did fine in 3rd grade but he didn't get along all that well with the teachers. Having them again for all of 4th grade really was a bit of a drawback, especially since math is hard for him and he didn't grasp concepts the way his teacher explained them.
Now our school has been sued for illegal segregation, so there will be no more combined grades. The suit alleged that the kids who speak English were purposely grouped together to form full sections so the kids who weren't as proficient in English had to stay "segregated" in bilingual classes. Our school is only 18% white and about 70% Hispanic. My child has ADD and doesn't speak a single word of Spanish, so I think he probably belongs in a class where the instruction is 100% in English whether they mix the grade levels or not. They never mixed 5th & 6th grade, and now 6th grade has moved to the middle school so that's that.
I think in some circumstances it can be great. It certainly allowed more flexibility in 1st/2nd grade because there were 3 different levels of math and 3 levels of reading and the kids were grouped by ability. That was terrific. I wish it could have been more like that in the other grades.