How to Reconcile Standards with Students Below Grade Level?

As many of you know, I teach in a district, and a school, where most of my students are below grade level (Title I, Focus School, etc). How do you take your kids from where they are, to where they need to be, when that is as far away (and foreign) as the stars for some of them?

I was in an interesting conversation today about how to address that, and meet the standards/curriculum/state tests.  I see two things mostly happening, and I'd love to hear which side you fall on and why, or if you think there is another position.

Here are the two sides that I see:

1)  Teach the curriculum, at the level that it is supposed to be taught.  This allows those few students who are higher/above grade level to get the opportunity that they should.  Try to provide scaffolding to help students be more successful.  This might come in the form of before/after school tutoring, additional homework, starting out easy and quickly ramping up, or other scaffolding strategies to help students reach that level.

2) Recognize that the course is way over students heads in many ways, and that most of our students don't do homework, so focus on keeping them engaged in class, and feeling successful.  Keep the lessons more at a basic level, and offer some 'challenge questions" for the higher students.  Then put in some test prep strategies, and focus on major concepts to see if you can get test scores up.

I see pros and cons of both, and would be glad to elaborate, but I'd love to hear what you think?  Which camp do you fall in?  Or are you somewhere else? How do you get students to a level of rigor that they are not comfortable with, when the curriculum demands it?

What is meeting their needs appropriately? What is lowering expectations?