I have been working in a Scrum environment for the last year. Here is the model we use.
The QA folks all report to a "QA Manager" for HR and reporting purposes. But the QA people are actually part of the agile team and are embedded. They don't report, in a QA capacity, to the QA Manager - the report directly to the scrum master.
There is a reason for keeping the QA department - they basically become a support organization for all the projects that are being implemented and provide resources on a project basis. BUT, there are certain aspects that should remain constant in QA across all projects. For example, SOX compliance. It would be a coodination nightmare to pull selected people out of agile teams to do any sort of SOX training. But if they all "belong" to a QA department, it become logistically simpler to pull the "QA department" for SOX training.