Doing the first act of Into the Woods is a fairly common practice, from what I've seen. It turns it sort of into a kid-friendly version. Or maybe kid-safe.
This. Yes, it misses the point of Sondheim's original intent somewhat, makes it less cerebral and ironic and all, but it's still a bunch of really good music, a fun story, and provides lots of important but not-incredibly-difficult roles, which is good for a high school musical. Also, it's conveniently shorter. There aren't too many musicals where you can actually get a more reasonably long, entire story just by lopping off the second half.
And the wolf and "discovery" songs (Cinderella's, Jack's, Red's) still make the show much more of a thinker than most shows a high school cast could do, even with the happy ending left happy.
As to Footloose: I don't know about the "Daddy, I'm not a virgin" line specifically, but the song "The Girl Gets Around" pretty much makes the same point. When my high school did it, that song was left in, and I'm from Mississippi. I think most drama teachers know that kids are aware of the existence of sex. The fact that I missed this performance by a couple of years has always made me sad, because I would've taken drama that year just to try out for the preacher's role.