How is a team improved by being multicultural? Does mulitcultural
diversity make a more effective team? I'm not looking for product
information from the various "team building workshop" purveyors.

Many researchers indicate that there is a dearth of research in this
area.  However, there is some, as well as a wealth of anecdotal
evidence.

Empirical studies indicate that multicultural teams either perform
much better or much worse than those that are not diverse. 
Multiculturally diverse teams tend to be more creative and flexible,
but they are more likely to encounter communication and interpersonal
relationship problems between team members.

Provided that the team finds a way to manage its diversity and
cooperate, multicultural teams can be very successful and reap the
advantages of their diversity.  Those that do not often suffer greatly
reduced performance compared to a monocultural team.

I have provided numerous resources below that describe the advantages
and disadvantages of multicultural teams that will answer your
question in detail.  Advantages certainly exist, but simply being
multiculturally diverse does not determine a team's likelihood of
success.  Instead, it is the team's ability to avoid conflicts and
communicate across cultures that determine its effectiveness.

Sincerely,

Wonko

"Call For Papers & Workshops"
http://www.sietar-europa.org/congress2005/in_congress_presentation_proposals/Papers/P33.doc
(provides a good overview of advantages and disadvantages of
multicultural teams, along with the research supporting those views).

"The Potential and Pitfalls of Multicultural Mission Teams" by David
Greenlee, Yong Joong Cho, and Abraham Thulare
http://www.globalconnections.co.uk/pdfs/multiculturalteams.pdf (this
article explores multicultural teams in a religious mission context).

"Internal and External Fit of Multicultural Teams Within Multinational
Corporations" by Riki Takeuchi and Vincent J. Duriau, Academy of
International Business (2000)
http://administracion.itam.mx/workingpapers/wp0102.pdf

"Multicultural Teams" Global tmc
http://www.globaltmc.com/Mult.teams.html (a bullet list of advantages
and disadvantages of multicultural teams).

"Diversity Pays: the Competitive Advantages of a Culturally Diverse
Managerial Team" by Mr. Hari Bedi, Australian Government Department of
Immigration and Multicultural Affairs (1995)
http://www.immi.gov.au/multicultural/_inc/publications/confer/05/speech22a.htm

"Matching Managers to Strategies: Do Multinational Companies Need
Multicultural Top Management Teams?" by Winfried Ruigrok and Hardy
Wagner, University of St. Gallen (January 2001)
http://www.aueb.gr/users/esaopa/courses/maniatis/ruigrok.pdf

Thank you for your prompt answer! I needed reference material for a
paper, and couldn't find a thing! May I ask what search terms you used
to find these excellent sources?

This question can be viewed from the perspective of effectiveness of
the individual members of a team and of the team as a whole. As Wonko
indicated in the excellent Google response, the challenge is two-fold.

(a) Having a wider range of diverse perspectives, experiences, and
worldviews available within the team for the team to draw upon.
Clearly, the more diverse the members of the team, the more rich the
team's built-in knowledge base.

(b) The team having the interpersonal skills and abilities to actually
draw upon this available knowledge base. This requires that the team
members and the team have intercultural sensitivity and competence to
effectively operate in a truly inclusive and more productive way.

Intercultural sensitivity and competence can be measured and
developed. The Intercultural Development Inventory, based on Dr.
Milton Bennett's Developmental Model of Intercultural Sensitivity, is
a well-established basis for this type of work. You can see more about
these uses of the IDI at http://www.MDBGroup.com/idi_background.htm.

This link provides some background about how this relates to
productivity, innovation, and creativity:
http://www.MDBGroup.com/creativity1.htm.

In the previous comment about diversity in teams, I intended to
provide direct links. Hopefully, Google Answers will convert the HTML
into live links:

<a href="http://www.MDBGroup.com/idi_background.htm">IDI Background
and Applications</a>

<a href="http://www.MDBGroup.com/creativity1.htm">Relationship to
Productivity, Innovation, and Creativity</a>