In terms of, which Australian city goes to the most effort and achieves the best results in Christmas decorations? Spending some time in Sydney during Xmas last year, my vote would go for Sydney. You cannot beat those projections on St Mary's Cathedral. I can't help but think how good Collins Street would look if they put fairy lights in the trees during the Christmas months, it would make Melbourne a little bit more Christmasy - so far Melbs lacks the spirit for me.
Here are some shots of Sydney's thriving Christmas displays:
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Christmas is here by dreadfuldan, on Flickr
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Light Up Martin Place by sachman75, on Flickr
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Sydney by Stephen D Harper, on Flickr
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Sydney, NSW Australia by ~Elver, on Flickr
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Projections on Sydney Town Hall by *vlad*, on Flickr
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St. Mary's Church by Australia Boy ♂【J.D Chen】, on Flickr
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Lights of Christmas 2011 by labtamg, on Flickr
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Light Show at St Mary's Cathedral 1 by peterb666, on Flickr
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Lights of Christmas IMG_1793 by BeauGiles, on Flickr
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2399 St Mary's Cathedral, Sydney by Rmonty119, on Flickr
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david jones choir by laurenfarmer, on Flickr
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david jones choir by laurenfarmer, on Flickr
Here are some shots of Sydney's thriving Christmas displays:

Christmas is here by dreadfuldan, on Flickr

Light Up Martin Place by sachman75, on Flickr

Sydney by Stephen D Harper, on Flickr

Sydney, NSW Australia by ~Elver, on Flickr

Projections on Sydney Town Hall by *vlad*, on Flickr

St. Mary's Church by Australia Boy ♂【J.D Chen】, on Flickr

Lights of Christmas 2011 by labtamg, on Flickr

Light Show at St Mary's Cathedral 1 by peterb666, on Flickr

Lights of Christmas IMG_1793 by BeauGiles, on Flickr

2399 St Mary's Cathedral, Sydney by Rmonty119, on Flickr

david jones choir by laurenfarmer, on Flickr

david jones choir by laurenfarmer, on Flickr