We have a list, which contains schools with their names and addresses. We have another list, which has lookup field to that list on school name field. Since schools in different cities can have same name, when adding new item to the referencing list, user will see the same name twice and he will not know in which city that school is. Is there any out-of-the-box possibility that lookup field will render something like $SchoolName ($City) in the drop down list? Or any workaround?

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You could create a calculated column to concatenate concatenate([SchoolName], " ([City])" the values on the school list and use that calculated field in your lookup. Verified it works in 2007, so it should work no matter what platform you're on.

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