That's pretty much the route Facebook took so it just might work but I too remain sceptical after mentioning G+ to a few people over coffee, beer or at the university and having to explain what I'm even talking about every single time.

Without commenting on the validity of the argument, the point that you're missing (not your fault, the post wasn't clear) is that there will be separate ("siloed") G+ instances for these universities. The distinction will be the same as Googlers having access to both public and internal/corp G+.

One use case for this is that I can make a G+ event (e.g. a party) public, and know that only fellow students will see it.

It took me a second to recall where I first heard "underpants gnome" from. But it's Slashdot of course.