Daniel-
There is no reason why MediaWiki can't become multilingual. Since this has not happened on its own (probably due to the use of subdomains) we could use some of our award money to put a bounty on that. Somebody already tried to submit a patch for this
... which was woefully incomplete. I am completely in favor of properly internationalizing MediaWiki and putting a bounty on the implementation. However, such an implementation should be generic, i.e. it should allow us to migrate Wikipedia itself into that system. This requires some way to deal with namespace conflicts - e.g. wikimedia.org/en/Merchandising vs. wikimedia.org/de/Merchandising (the current Merchandising page on Meta is actually German), and we would have to set up automatic redirects for subdomain access. Given that, setting subdomains up now while we don't have this advanced code will put us well on the road to a nice general solution for all Wikimedia projects once we have it.
Regards,
Erik