It's free/open sourced, meaning that every education system with a budget finds it appealing. Once implemented though, the organization will need to spend buckets of money to design, roll out, and maintain Moodle.
What you end up with is organizations installing Moodle, rather than some higher quality, equal-cost education software they should have installed from the beginning.
You upload all your students grade information to an external private company? Which university do you work for where this is allowed?
I'm all in favor of disruptive competition in that market, mind you! But I don't think it's easy.
The argument is against a solution that has no possibility for self-hosting and maintaining control of data. That they offer a hosted/SaaS option is irrelevant, because they also offer a regular self-hosted solution.