In July I moved from the US to Australia. I've tested out Microsoft Live a few times recently. The most striking thing I've found is the number of Australian sites in the top 10 to 20 SERPs. This is without the country-specific search option enabled. On a couple of times, I've actually redone the search and checked the box "only from Australia", because I didn't believe that what I was seeing was the international results. The results confirmed that my first SERP was the "international" one.
Now, this is true not just for commercial terms but general information enquiries, stuff that is the same regardless of the country. Essentially, to rank in Live in Australia, it's very tough unless you're .au or you are locally hosted.
One other thing that suprised me was that Australia seemed capable of serving up tons of quality pages for a wide variety of searches. I wonder: how may countries have a strong enough internet industry that they could support this kind of local emphasis across the full range of searches?