One of the festivals I go to in Oz, Albion Park Folk Festival (formerly Kiama), always has one of these, only they call it a Band Mixup. It's done the same way you describe, fi_in_nz, and the Band Mixup Concert is a highlight of the final day. It's a hoot being in one. Strangely enough, none of the other festivals around here seem to do it.

Jenny