It doesn't work for Public Games.
If Monster Power is on, you cannot make your game public. Similarly, when making a public game, Monster Power is disabled.
As you've noted, there are a few issues with allowing MP in Public Games:
In general, harder content tends to be less enjoyable with random strangers.*
It would make matchmaking more difficult by increasing the number of matchmaking pools (one new pool for each MP level). In turn, that could increase wait times.
Issues associated with "leeching" or similar behavior could be exacerbated, especially if under-geared players chose extremely high Monster Power levels for the games they wanted to be matched into.
Although we love and support co-op, since Monster Power is a new system, we didn't want to open it up to Public Games just yet. We're definitely open to revisiting that idea down the road, though.
*Your mileage may vary.
http://www.diablofans.com/blizz-tracker/topic/237898-monster-force-clarification/