Hello all,
I am working on this project from past few months http://code.google.com/p/offline-wikipedia/, i have presented a talk related to this in freed.in 09 too.

My aim with this project is:

To create DVD distribution for English wikipedia up to the standards that it can make match to http://download.wikimedia.org/dvd.html.
Making it easy to install and usable straight from DVD.

Target Audience are:

Those who don't have Internet access.
Those who want to access content to wikipedia irrespective of Internet connection.
Those who use existing proprietary encyclopedias available in market.

Present status:

Apart from source code hosted at google, whole setup is also available at http://92.243.5.147/offline-wiki there are two parts, for complete English wikipedia you have to get blocks.tgz and offline-wikipedia.tgz, there are instructions in README file available there. There is also also a small prototype sample.tar.bz2 available, in case one wants to check the quality of work.
I am following approach taken by http://users.softlab.ece.ntua.gr/~ttsiod/buildWikipediaOffline.html, but with some difference, i am using python to convert wiki-text to html and django for server.
As of now, with XML dumps provided by media-wiki, last year's October dump was 4.1G, i have csv files to locate articles inside those dumps of size ~300M, and small django configuration to access and convert the articles to html, and all this fits into a DVD.

Issues at hand:

My python parser to create html out of wiki-text if not perfect, i can replace it with something which is better and existing, but am yet to find that.
To access articles faster i am breaking single bz2 using bz2recover, and it gives me 20k odd files for English content, i am trying to avoid those many files and not compromising with the speed of browsing the articles.
We can replace django server with something more light and simple given they don't have dependency cycles and making it hard to access/use/install.
March 09 English content is 4.6G making things more tight
It is only text content excluding multimedia, pictures(which are improtant part and cant be neglected).

Target:

Make it updatebale.
To make it editable.
To manage different categories of articles, and segregation based on that to make refined and better education/learning tool.

There are other issues too, i know of other attempts like wiki-taxi, wikipedia-dumpreader, and am trying to patch things to get better results. But don't know why those present parser/attempts never made to that DVD distribution list. I am working to improve it, in the meanwhile any suggestion, feedback, contribution are most welcome.
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Regards
Shantanu Choudhary