This case led to the general agreement that our department needed to reevaluate how we do our qualifying exams. Apparently we didn't have them at all in the past, and now we do. I personally see quals as a mechanism to fail out students who perform really badly, and my student doesn't fit that criteria at all. I agree with the idea of quals, but not with our rules as they stand. A mechanism that siphons low-performing students to a masters degree is certainly needed. Others may disagree that quals should be black and white, but I think there should exist an in-between where the advisor can provide input on the student's lab performance to push the decision one way or the other.
I am especially upset because both students accepted into my group last fall have "failed out". The first one made D's in their grad class (!!!). And, now this.