I've experimented with this a bit on WikiPedia directly, but it seemed to me to be a limited set of LilyPond functionality, but I didn't dig much farther than that.
You can see this extension "in action" here, on the page for Beethoven's 5th:
And of course, click "Edit" to view the WikiMedia source code.
You're incorrect in saying that this requires Lilypond on the Users machine. It does require LilyPond on the serving machine(s), but not on the desktop machines of the editors.
I was thinking that editing and adding proper scores to many WikiPedia pages might be a good way to get some more momentum around the LilyPond syntax as an open score format. Any WikiPedia article on a popular piece could benefit by using this extension, and many pages will include a crude PNG file of the score instead of using the Score extension.