I created this plugin for my site in NZ. I only wanted people in NZ to sign up for new blogs as I was getting tons of splogs from overseas. So I created a simple plugin which checks the IP address against a geolocation site. You can see it in action here: http://blogtown.co.nz/wp-signup.php - but only if you're not in NZ. Not every wpmu site would want this, but I thought I would share anyway... Here's a step-by-step (as requested):
  1. Download the plugin
  2. Edit the plugin and make changes to the error message (line 37) and the country code to look for (line 38)
  3. Copy the plugin to the 'mu-plugins' folder
  4. Test that it works