Actually, the preferences system is about as fair and as democratic as it can get. The only time it seems to fail is when a party you voted for passes preferences to another party that you personally wouldn't have endorsed. The thing is, you can choose to allocate your preferences yourself, or elect the party to do it for you. Ultimately it always comes down to your choice, and if you give away your voting preference rights to someone else, you've only yourself to blame if you don't like the choices, or can't be bothered filling out the ballot forms properly. It's up to the individual to check that they filled the ballot papers out properly, and if you make a mistake, you are entitled to destroy the ballot paper you ruined and get a fresh one.
So in actual fact, passing preferences empowers the voter, and empowers the minor parties because in the case of a party, they can make deals to trade for power. For example, the Geens are really aiming to get as much control over the senate as they can. They know that they won't get the balance of power in the lower house, so they deal away their preferences with the Labour party in order to gain concessions, and to boost their profile so that in following elections, they have more publicly allocated campaign funding and a greater appeal to the public because their visibility is greater.
Where our system does fail us, is in that we have a perception that we are voting for a person to lead our country, but as recent events have shown, we are only voting in members to represent ourselves locally, and it is up to the parliament to determine who should represent it, usually decided entirely by the party in power at the time. So while many thought they had elected Kevin Rudd to lead us, they had forgotten they had only voted for their party member and by default granted that party member the right to vote on the constituents' behalf who the Prime Minister would be. For mine, I'd prefer a third form where you could list your preferences for preferred head of state. PM/President/whatever, to avoid the sort of political shenanigans that occurred so recently.
The two-party majority system that we seem to have is really the fault of the people. If you REALLY want the system to change, you need to use your vote to signal that change, not simply vote for the person you think would win anyway, or vote for the opposition simply to get the incumbents out of power. Your individual vote might not seem like much, but if everyone votes sensibly then the combination turns out to be truly powerful thing, and a responsibility that shouldn't be treated so lightly, especially when you know that there are so many places in the world without our freedoms. So you can moan as much as you like about the alleged unfairness of your system, but count yourself lucky that you actually have the right to do so, and if you want to protect that right, you need to vote to do so.
Oh, and if you think our system is so undemocratic, compare this to the system used in the USA, where only a handful of states actually wield the power to change the government because they get more "votes" than the other states, and where the individual cannot allocate a preference vote if their preferred candidate doesn't win.
Yes, our last few governments have a lot to answer for, and yes, we seem to be losing our rights all the time... and yes, that is the collective fault of the public who voted the bastards in! And yet, in spite of all of that I still feel like we are the lucky country (yes, I've lived in MUCH worse), and if you really want to change things, you have the right and the individual responsibility to do so.