I'm from New Zealand and in New Zealand we introduced Mixed Member Proportional (MMP) representation as the voting system in 1996. Under MMP, you get two votes in the general election. One is for the MP who will represent your constituency (natually, constituency MPs typically belong to a party). The second is for the party you want to run the country. Half of the MPs are constituency representatives; the other half are selected from a list to ensure that the number of seats each party is proportional to the party votes they received.
Since then, no party has won over 50% of the votes and every Government in New Zealand has been a coalition. Some have been better than worse, but what is most interesting is the way the political scene in New Zealand has matured. Like the UK, NZ has two major parties: Labour on the left and National on the right. These parties have always commanded the two largest shares of the parliament and one of them has dominated each Government. After each election, the major parties enter into negotiations with the smaller parties to decide who will govern. This is usually the party with the largest proportion of votes, allied with ideologically compatible smaller parties.
To manage these negotiations, the Cabinet Manual was published. This document outlines the conventions of the NZ Constitution and has a major section on handling the post-election period when the negotiations to decide the next government occur. This included provisions for a caretaker Government (the previous Government, with limited powers). It also defines the role of the civil service in negotiations, to ensure they support the process without biasing one side or another. I suspect the UK Government got their hands on this during the post election period in the UK. It took time to get to this process and, while never without political drama and tension, negotiations to form a new Government now proceed without hysteria.
The second interesting element is the small parties. There were always a number of smaller parties in NZ that received a few votes and, occasionally, a seat or two in the Parliament. But their real influence on politics in NZ was very small. With MMP, these small parties now had a very real chance of being involved in the Government. This forced them to up their game and offer more complete and coherent policies. This both allowed them to win more votes and to gain more power in a coalition Government. There were certainly cases of small parties wielding disproportionate power in the Government (NZ First in 1996 is the most obvious example). However, as the politicians got used to MMP, this is far less likely. At the same time, the two major parties had a new challenge. In the early 00s, the National party lacked clear direction. As a result, it lost nearly half its votes to various smaller parties - either socially conservative or on the economic right.
This segues nicely into the main point of this post: all political parties are coalitions. In the 1980s, Reagan formed a grand coalition between the social conservatives and the economic right. This coalition has dominated US politics for the last 30 years. In the UK, a similar coalition was formed in the UK under Thatcher. Both countries used the power of this coalition to restructure their economies - and the world economy - in the 1980s. On the other side of the house, Labour's coalition was more diverse: labour unions, most minorities, intelligencia are all the main electoral support for the left of centre. These coalitions are made of diverse interest groups, ideologies and personalities. The Liberal Democrats count both socially and economically liberal among their ranks. Each party's policies and actions are the result of negotiations, trade-offs, compromises and so on that are part of forming and maintaining a coalition. And a party where these divisions become public is usually a party in trouble: Labour's performance for most of it's last term in Government was a perfect example of this, with the conflict between Blair and Brown.
So in many ways, a coalition Government is nothing new. What is new, for the UK, is that the coalition is public and the differences between the two major partners are visible. We still know very little about what is said behind closed doors; about how the internal negotiations within the two parties happen. There is a lot in common between the economic liberals and the economic right. But there's a lot of conflict between the social conservatives and social liberals.
I'm not sure how long this coalition will last and what the lasting impact will be. I suspect that the Liberal Democrats will suffer on two fronts. Their major goal in joining the coalition was to get some sort of electoral reform to ensure that their participation in a coalition Government was not a one-time event. However, the social conservatives in the Tory party are unlikely to support electoral reform and they have alienated much of Labour's left who saw them as an ally (or at least a friendly opponent) against the common, Tory, enemy. This will make achieving electoral reform much harder. At the same time, it's hard to see that their alliance with the Tories will gain them votes. Their own left - the social liberals - may feel betrayed by the party's alliance with the conservatives. So even if electoral reform passes, they will have to rebuild their electorate.
Coalitions are here to stay - they are an integral part of politics. I hope that the UK electoral system is changed so the coalitions are made a little more visible and public. Public coalitions make politics a more open, if more complex, game. At the same time, there is a need for the politicians, the electorate and the media to mature. This will take time, but it can be done. The question is, will it be done?