Exchange email is acceptable but not outstanding. The reason that most companies end up with Exchange is the good calendaring support.
Try your free or less expensive options first and see what your employees think. At our company (back when we were a startup) our first IT hire's first job was to install Exchange -- the executive team was absolutely done with the inferior product that we were using before it.
Another reason you may wish to not use a hosted environment: your company's data can't be monitored or revealed by a subpoena to the hosting company if there's no hosting company. You can be sure that Google complies with subpoenas and court orders unless they're laughably vague and potentially useful for a PR stunt.