I go to Duke, and we cram the first two basic science years into one year and then do clinical rotations our second year. We don't take Step I until after our rotations, either before, during, or at the end of third year, which is a year devoted to research. Our school has actually done a study in which we all take a practice Step I at the end of first year (without studying) and then take another at the end of our clinical rotations (without studying) and the grades do go up significantly. With studying (ie, the actual Step I) grades go up even more. I realize the study isn't perfect, since no one actually knows if we'd end up with the same scores after year 1 if we actually studied for the test, but it's interesting.
Also, some people at my school have been known to take Step 2 immediatelly after second year, and then go back and take Step 1 later on, when they have more time to devote to studying all the little things we forgot. Again, this works for us because we're doing research during all of third year, so our schedule is a little more flexible. If I went somewhere with a more standard curriculum, I'm not sure I'd want to risk waiting to take Step 1 until the end of third year because I'd just like to know what I got far in advance for residency applications, etc.