Please know that I am not trying to be rude about this at all. If allergies to the dog are to be a concern for the school, then it must also remove every other type of common allergen from its campus, including every type of pollenating plant, the grass on the athletic fields, and all of the common allergens in the kitchen (almost every grain, dairy, eggs/poultry, nuts, beans of all kinds, and every seafood product, ... ) because the school just might have students allergic to one or more of these things.
I can understand why the school would not want a dog, no matter how well trained, to be roaming in crowded hallways. Though the danger is miniscule, it is not nonexistent. However, were I to argue this point in court, I would ask if a school should remove a blind person's cane because it can be used as a weapon. For this reason, the student can take paths less traveled, or move a few minutes before/after everyone else does.
I can see the interpreter point as valid, but only if the interpreter(s) would be with the student every minute from the time he showed up for school in the morning to the time he left that afternoon. If the school will not allow the dog on campus, it should replace that service in like manner. This would require that the interpreter(s) be male, so that trips to the bathroom, gym class, and so on are, at the very least, less awkward. This would mean possibly no down time at all for the interpreter(s), and the school would have to be willing to pay even more for male interpreters than a female, if that is the case where they are, not to mention housing the interpreter if he lives too far to commute. Economically, the service dog definitely costs the school a whole lot less than any other alternative.
True, if the school really insists on sticking to its own policy, it can. However, I think that the school would end up investing more energy in trying to replace the service than it would in just making a small change in its own rules.