Generally these packages are kept at the same major version as at time of release (ie April 2010 in the case of Ubuntu 10.04 - the basis of TKL v11.x). That does not mean however that they are not updated. All security related bugs are backported (and occasionally other serious bug fixes too). These will be auto applied via TKL's automated security update mechanism. The downside is new features are not added and minor bugs are often not addressed (as it sounds like you are experiencing), but the upside is that stability and security are generally much better.

Once you go for an upstream version you will need to manually apply all updates as they are released. So whilst the idea of having the 'latest and greatest' may be appealing you also need to consider the increased maintenance costs and security risks (if security bugs are not manually addressed quickly as they arise). For a small site, with little important data and a good backup regime, an increased security risk and a bit of extra maintenance may be a no brainer. Especially if there are show-stopper bugs and/or needed new features.

When the TKL core devs release an appliance they take these factors into consideration and decide whether to include the pre-packaged version or the upstream version. For example in appliances such as Moodle, the devs decided to install from upstream as the pre-packaged version (v1.9) had some pretty serious bugs, and the new upstream version (v2.0) has some strong new features. In some other cases (such as Redmine IIRC) the pre-packaged version is just so old and missing so many features that there isn't much choice.

I personally don't use MediaWiki much but I can assume that the TKL devs didn't think there was enough value in installing from upstream. So if you'd like to see an updated app that uses an upstream install of MediaWiki the only way I would anticipate it happening would be if you can make a strong argument for it. Perhaps detail some of the bugs you've encountered and/or what features are missing.

But in the meantime, the beauty of open source really shines in instances like these. If you care to take the time (and are willing to wear the downsides) you can do whatever you like with your appliance! :)

Assuming you have a site with data already operational (some steps can be skipped otherwise) my recommendation would be:
- Do a backup (TKLBAM FTW!) If you haven't already, test your backup (preferably on a clean VM) to double check everything will work again as expected in a worst case scenario. [edit: See also this post Not sure if it's relevant, but possibly is!]
- Unistall the default MediaWiki via package management:

apt-get remove mediawiki

If you wish to remove all associated MediaWiki data (which you probably don't) use the --purge switch.
- Then manually install from upstream as they recommend. I'd assume that'd be to /var/www

The only possible loose end you may wish to tie up from this process is depending on how the TKL devs installed MediaWiki originally, it will most likely start telling you that "The following packages were automatically installed and are no longer required". If things such as Apache and MySQL are listed there DO NOT run autoremove as suggested or you will break your appliance! Ideally you should flag them as manually installed (thus removing them from this list). Easiest way is to apt-get install them all (copy paste the list of app names after the command).

Good luck! :)

[edit] I just found this post from a while ago - it may be useful for migrating data from your existing MW appliance to a new installed version (assuming you have data to migrate). I have added a brief note above.

Love to hear back from you about your experiences.