Sometimes I think people just like to debate when they have neat little debating packages lined up for them.
Obviously it's possible, as it happens all around the world, but systems of more than two parties are inherently unstable.
See also http://en.wikipedia.org/wiki/Arrow%27s_impossibility_theorem
In our current system, a third candidate can only help the opponent most opposite of him win, but with runoff elections a third candidate would help the candidate closest to him win.
The difference with a runoff system is that multiple candidates from the same side of the political spectrum helps your cause instead of hurting it. Right now, if either party has multiple candidates running, it only punishes them.
The ones who don't vote are hardly part of the solution.
(disclaimer: not US citizen. My country has government ministers from six different parties, including both conservative [religious and fiscal, two different parties], left, and the greens)
I believe runoff elections would though. Currently if one party runs multiple candidates something like this happens:
Democrat 1 receives 33% of the vote. Democrat 2 receives 33% of the vote. Republican 1 receives 34% of the vote.
Democrats had two strong candidates with some differing views, and decided to let both candidates run so the people would have more of a choice. The result is that 66% prefer a Democrat but a Republican ends up in office.
(Spare me the "their both corrupt" speech, I use these parties only as an obvious example.)
This called the spoiler effect, and a runoff vote would prevent it. Right now more choices in the vote results in chaos and the candidate most people DON'T want ending up in office. With a runoff vote, there is no negative with more choice.
People may say that her election is a mark against IRV or RCV; but that's not the point! There will always be cases where someone incompetent gets elected. But the interesting thing in her case was that the groups who control the elections behind the scenes (PSUs, lobbyists, parties) were completely thrown off. Her election showed that it is possible for someone who is not beholden to the existing power structures to have a shot at election.
[1] http://en.wikipedia.org/wiki/Jean_Quan#2010_Oakland_mayoral_...
Honestly.