I have heard, but thankfully not seen, that there are school librarians who either put all the AR books in their own section or--even worse--toss Dewey and arrange the entire library by AR levels.
Some of the answers to this were great.
One said, "It is not best practice to arrange books, elementary or otherwise, by program level."
But my favorite was this one:
"This is an easy decision to make. You simply ask yourself, 'Am I running an AR program or a school library media program?'"
Oh, yeah!
There's just not even enough good evidence that AR works well enough to go re-arranging the entire program around it--not to mention that it's expensive. If I end up working in a school that has AR, I'll do my job of course, but AR will serve the students--not vice-versa.