I do think projects like this can benefit from government sponsorship, as it's too expensive for a startup to try and fit zillions of repeaters on top of lightpoles. Ricochet is sort of an example of this problem, but perhaps not the best one. (They were a bit ahead of their time, tried to grow the business far too quickly, and their focus was totally on the wrong group of users. If they'd concentrated on the SFBay area they would've done alright.)

The downside of having the government involved is the inevitable censorship issues. "No pr0n! No bomb plans! No [blah blah]! No file swapping!" Etc.

I beliee GPRS/GSM will win out over WiFi in the long term, at least for this sort of network. (Obviously at home and in businesses people will continue to use something like WiFi.) The cell providers already have experience with accomodating many simultaneous users, and their billing model allows them to handle relatively limited amounts of bandwidth. Cellular has far better range and coverage and has the bonus that it serves both data and voice with reasonable latencies. WiFi was never intended for handling these sorts of problems.

If Philly offered free city-wide wireless, no one else could compete. They would be the only game in town. And, they'd probably start nibbling at the edges of freedom and work inward. Sure, soft-core porn might not be a problem, but what if Rusty starts downloading the stuff that's legal but a bit harder?

What if Rusty peruses a bunch of .cn web sites?

Your ISP and google is bad enough, I don't want the government keeping track of my web habits. And, given past instances, that's probably what would end up happening.

Note also that, AFAIK, wireless cards send their MAC address, and that's a universal identifier. It might not tie into a specific person, but that might be able to be determined by going from the manufacturer, back to the retail store, back to your credit card. In any case, the MAC address would allow them to track all traffic from and to that same address.