Has Germany officially approved the proposed increase to the VAT from
16% to 20%? If so, what date does it come into effect?

NO, there has been no law passed.  The increase in VAT is a point of
the coalition agreement between the CDU, CSU and SPD The proposed date
for the increase is Jan 1, 2007.  At present, the talk is of an
increase to 19%.

Here is a site with many references from German newspapers on the subject:
http://www.campact.de/mwst/infos/logbook