I think you're right on Chris.
We don't need legislation to do this. It would be a very good public relations move on the part of popular local merchants (Tim's, MacD's, etc) to do. As it is, it does not sit well with me at all to walk down the Vedder rotary trail the day after the clean-up and already there are Tim's cups thrown away. The fact that a coffee cup could fetch a $0.05-$.10 refund will encourage a lot of local people to sweep through local popular areas and make easy $$$$'s. I, for one, would not mind at all to pay the extra deposit. If I did mind, I would always have the option of taking my cup back and receive a refund. After all, that would be the ultimate! Wouldn't it? To be responsible for our own litter.
I think we need to promote it locally, each of us in our own neighbourhood. If there is a demand, the merchants will get on board. Eventually, the by-laws will catch up.