The disenfranchisement of Estonia's Russian-speakers in the new generation is usually attributed to two things: hostile foreign media, and russian schools as an impediment to integration. The former comes down to the fact that Russians en masse will not speak Estonian and do not speak English, in fact they're having a hard enough time learning their own language; the upshot being that the underclass lemmings stay in front of the television showing channels piped over from Russia, and forego any sort of critical analysis of the propaganda therein.*
The latter compounds this problem by making sure that young Russian-speakers have very little opportunity to escape the vicious circle. Friendships and afterschool activities are maintained within this virtual ghetto, under the watchful eyes of a faculty mostly carried over from the Soviet days. Like the rest of the Russian-speaking population, the teachers are likely to be immigrants, but their training includes both indoctrination and the imperative to indoctrinate the kids.
Russian-language schools are actually an example of the astounding tolerance towards the community by Estonians; in very few European countries will you find massive, municipally funded education networks in languages other than the state tongue. The fact that russian schools exist is, however, mostly a consequence of a lack of ideas - Estonians aren't particularly happy about them, and Estlanders increasingly prefer to put their kids in estonian schools. The russian education is being phased out slowly, as the demographic balance shifts and the Russian-speaking population shrinks faster than the national average; however, every single school closed provokes a wave of indignation and accusations of malice.
The reason the educational system was not transferred entirely into Estonian right after independence is one of logistics. At the time, it would've been politically possible, I think. But there simply weren't enough teachers to go around, and after a while the integration policy - a mix of assimilation tactics and "ignore the ruskies, maybe they'll go away" - made the question one to dodge.
Whenever it was brought up - both at the time I was in school myself** and later - it was always the same thing: start from the top, switch the higher years to Estonian and work your way down. I'm not entirely sure what the logic behind this is. My best guess is that because the last three years are not mandatory - children can leave school after Year 9, even though they are guaranteed an education for free up to Year 12 - the assumption was that any kids who make it into the final stage will be both reasonably bright and reasonably motivated. So the cut-off point was set to Year 9; above that, some of the classes are now taught in Estonian - particularly things like Estonian literature and history - and more are to come. Even that project is stalling because of a lack of teachers able to speak the language properly.
The vision of a Russian teacher reading the material to Russian students in Estonian is, admittedly, extremely funny.
However, the approach itself is fundamentally wrong. Kids who don't speak Estonian as a first language will resent it, of course - it's more difficult for them; the result will be that on the one hand, the students will resort even more to rote memorization instead of actually comprehending the material, and on the other, their attitude towards the impossibly complicated tongue will not improve. A bit of extended vocabulary is hardly the same thing as linguistic proficiency.
The trick is to start at the other end: phase out Russian-speaking first years. As anyone who's either taught or learned a language will attest, it is incomparably easier to pick up the skill at an early age. Seven-year-olds who are suddenly forced to spend their day talking in Estonian will have no problems growing bilingual (and there's no reason why the scheme can't be extended to kindergartens; most of my Estonian now is a pale remnant of the proficiency I had when I went to kindergarten with two dozen Estonian kids). Furthermore, it is far easier on the teachers. I am not going to claim that elementary school teachers' jobs are simpler - but the material itself is, especially in the context of a new language.
Set a cut-off date: from the year 2008, no more russian first grades. The existing ones will be allowed to run out - their teachers can then either retrain or retire (which most of them should be about ready to do, after fighting uphill for the best part of two decades), and within twelve years the problem will have been solved.
Education specialists in the audience - you know who you are - is there any objective, pedagogical reason why this wouldn't work? I can't think of any.
*This is not to say that Estonian media don't engage in blatant and grossly inappropriate propaganda; however Estonians by their nature are too sceptical to buy into the crap wholesale.
**Yes, I went to a Russian-speaking school. Supposedly a fairly good one, too. Though its principal has been in the news last year for being unable to speak any Estonian whatsoever, despite it being a job prerequisite and him being able to produce the necessary certificates.