Last night I went to the DC Linux User Group to hear Greg Dekoenigsberg talk about Redhat, open source, and how government is using open source software. He also gave us much of the back story to One Laptop Per Child which was previously unknown to your humble servant.
There was another speaker, whose name I did not catch, who explained how the military is using open source software. Open source fits in very well in the improvisational culture of war fighters. Given the very long procurement cycles, it is much easier for soldiers to simply download the software they need, open source makes that possible. There was a long description of setting up a wireless network out of scavenged materials, including Pringels cans, that was absolutely fascinating.