I agree with everything you have said Pam.
Bundaberg Regional Council has a MediaWiki wiki, and I when I first started looking around for a host for the LGAM site, my first preference was for a Mediawiki based one. I eventually decided on WIkidot because it (in my opinion) was easily the best free host available, but MediaWiki would be a very good option for a government or independently hosted site. Most people are now pretty famililar with the look and feel of Wikipedia, and I imagine at least a few MuniGov people would have already contributed to Wikipedia.
An official government host is also a good idea, although i'd imagine it might take a while to set one up. The advantage of a wikifarm like Wikidot is that we could start working on the site tommorrow if we wanted to.
And yes, encouraging people to contribute isn't easy. I read something about a study that estimated only about 1% of visitors to a wiki are likely to make a significant contribution. Still, having a large enthusiastic user group like MuniGov should make it a bit easier to get something started.