It’s happening… 
Joe, thanks for a clear and articulate explanation of OS in the software world. You really have made a good case for sharing: I am giving you an extra +50 reputation for advocacy.
Now, onto your question. Urban planning proper is politically loaded, because zoning choices and the like shift a lot of money around. Opening up the process, while it could certainly generate a lot of brilliant ideas, is also likely to ignite conflict. Also, and critically, the legals are much less clear in town design than they are in the software world, where brilliant lawyers have developes an array of licenses to enable sharing in the sense you describe.
That said, in many countries a variant of British project Fixmystreet has been implemented. It works like a sort of “open debugging” of the town; you notice some problem (a hole in the road, a malfunctioning street lamp, a vandalized garbage bin), you fire up a web app and signal the problem. Fixmystreet knows the names and email addresses of every public official in charge of street maintenance in the country, so it informs her of the problem. You, the citizen, can also track the resolution of the issue you have flagged. This is now a fairly standard tool in the Open Government toolbox.
There are also more creative approaches to what you describe. Another Edgeryder from Italy, Augusto, is trying to transform not the physical city, but the experience of the city (with stuff like urban picnics, free hugs etc.) in an open source-ish way. Check out what he is doing.