Well students and teachers certainly manage their knowledge on Moodle, and the language options let you rule out 'school' type terminology.
To me software package choice and evaluation are about matching your resources (money and time) against the software package features and constraints, so.... you need to start with what the client wants and what they have to put into it. If you share those with the forum, you might get more targetted help.
Hope that helps (unless you wanted a yes/no answer)

I explored this as part of my own MBA dissertation, and I also put a paper together for NAACE's Computer Education back in December 2005 (preprint), which may be of interest. IMHO VLEs in general (and Moodle in particular ) provide a very good tool for knowledge management in education.
The key benefits are:

• As a tool for capturing teachers' explicit and tacit knowledge;
• For knowledge sharing, especially when deployed collaboratively or across multiple institutions;
• For knowledge creation: through the development of knowledge artefacts by learners and teachers, but also through datamining and qualitative analysis, particularly when combined with MISs; and
  
• As a tool to facilitate organizational learning, including use as a vehicle for CPD.

I think there are some interesting links to explore between ideas in KM, social constructionism and open source software development.
That said, simply introducing a VLE (even Moodle) isn't going to immediately reap the benefits of KM - I think organization culture and collaboration would be crucial factors for success.

My first answer is: yes. My second answer is: stop. Lets first make a common definition of knowledge management in a special context. There are so much definitions and expectations about knowledge management.

There is a first and classic definition: easy access to written documents of a company.
There is a second definition that in modern times and continuous changing we need "connectivsm" (look at: George Siemens, personal learning environments (PLE), Social Software). The idea is, that relevant knowledge can't be documented and often it only can be expressed based on asking questions, sharing ideas and collecting comments.
On other point is about informal learning vs. syllabus learning. The idea is that times are changig so fast that we can't create new syllabus.
The fourth definition is: we need all of them.

Moodle is now not only a KM in educational contexts. It includes a lot of features for corporate use of documented knowledge, discussion and connectivism. Most companies don't like the idea that knowledge is shared out of the company. So a system that can be closed only for special people has a lot of charming.

Moodle with some additional features like full text search and more is a easy to use tool for KM .

Student-generated content is exploding on my site. We need ways to display, publish and organize it. And ways to move it on to subsequent semester classes and groups. That is the kind of "knowledge management" system we need.

I have introduced Moodle to numerous Steel Mills and other heavy industry companies as a way to capture and disseminate knowledge. I don't think there is a better software out there to accomplish Knowledge Management. Moodle is the PowerPoint of Knowledge Management!

Moodle On!

Greg