As the title states when would you recommend the use of the mediator design pattern and where do you see it used incorrectly?
Use a mediator when the complexity of object communication begins to hinder object reusability. This type of complexity often appears in view instances, though it could really be anywhere.
Misuse of a mediator can result in crippling the interfaces of the mediator's colleague classes.
It seems a little funny to talk about misusing a pattern. If your implementation follows the pattern, then you've used the pattern. Otherwise, you haven't. In other words, if your mediator is doing something else, then it probably isn't a mediator. Patterns are defined by what they do, what they in fact are. The names of things are simply labels.
The real question to ask yourself is whether your implementation of a pattern fulfills the pattern's promises for your design. The mediator pattern aims to encapsulate complex inter-object communication when it is becoming unmanageable. If it hasn't accomplished this, or hasn't done it very well, you could say that a mediator is being misused. At some point, it becomes a value judgement.