A couple of weeks ago, I attended a demonstration of Peerwise at the University of Auckland. Peerwise is a thoughtfully designed, useful, FREE web 2.0 tool that allows students to collaborate on the development of multiple choice questions. It was designed by Paul Denny (email@example.com), a computer science prof at UA. Peerwise is being used at many institutions throughout the world. For a good explanation of the tool and a list of institutions where it's being used, go to the Peerwise website at http://peerwise.cs.auckland.ac.nz/
It takes less than five minutes for a teacher to set up a class on Peerwise (as long as you have a list of student identifiers). An individual student can then write multiple choice questions with up to five answer choices. After identifying the correct answer, the student also writes an explanation of it. Other students can attempt to answer the question and can comment on it and rate it for difficulty.
At the demonstration I attended, as soon as the Denny explained how to use the software, everyone became immediately engaged in creating and answering questions. We could have happily done that all day! If you get a chance to attend a seminar on Peerwise, I would highly recommend it.