This is a great discussion.
Rosborne, I think that the money idea might work for a few on the lower economic scale, but like fishn' said, those in the upper income levels won't be phased by it. Also, another good point made by fishin' is the sense of entitlement that would inevitably come up with not all, but many parents. Even with a set scale based on performance, there would be the arguement coming from some parent saying, "My Johnny got a C instead of a B because the school system doesn't want to pay me the money we really deserve." And as far as money for the parents motivating the students, I have a suspicion that some of the less scrupulous parents out there might use methods of "motivation" of their own, just to get the money. It happens.
I do agree with the idea of changing teaching methods -- which I know would not be easy on a large scale, but it wouldn't be any harder than implementing a pay-for-grades program.
Soz, I like Csikszentmihalyi's "Flow" concept, too (used to have the book, I'm sure it's one I loaned out). And I've been looking at the Montessori method, which is similar to the concept of Flow and also goes along with Fishin's calculus example -- show kids how calc and trig and physics apply to the real world, and they'll learn better than just giving them the rules.
Rosborne, like you said in your initial post, kids seem to get bored more easily and "seem" to need more entertainment, but what's really happening (I think, maybe) is that they have grown up with visual entertainment that people my age (34) and older didn't, to such an extent that it takes different methods to teach. And of course not every kid learns the same, but I think that a good percentage just need something more than lecturing and testing. That bored the heck out of me in school (even though I did well) and the most visually stimulating thing on the market back then was "Sesame Street" (or reruns of "The Monkeys" in high school).
Anyway, if teachers could be trained in the idea of Flow or in the Montessori method -- which uses real-life experience as part of the learning and teaching process -- then kids could learn at their own level and their own pace, and focus on their own interests while still achieving a balanced education.
Here is a link briefly describing "Rubrics" (alternative assessment), which sounds, to me, like it would be great in getting students actively involved in their own education. I'm interested in what you guys think about it:
http://www.iloveteaching.com/assesmt/index.htm