Probably silly to weigh in , but . . .  it seems like a decent yardstick for something like this is whether the individual in question had any other redeeming qualities.  If Macdonald was only known for starting the residential school system and the Indian Act, then perhaps he should cease to be celebrated.  Obviously, he did more than that.  If we ignore his full life in favour of one act, we end up in a ridiculous state where the only people in the past that can be celebrated are those that adhered to modern standards of decency; we'll end up celebrating largely people who aren't very well known (because everyone else is disqualified).

That said -- should the architect of the residential school system be honoured with his name on a school?  That's a bit of a different question . . .  I'm open to hearing arguments why not -- personally, I think it would be great if schools were named after people associated with learning or scholarship, and not the mighty of this earth.