Many elections are won by a difference of less than 10%. 
  So if the 10% of the electorate can choose to play this
  game (is there 1 in 10 intelligent people in your 
  district?) they will create a better government for
  everyone.

It depends on the type of elections and the type of government. Yes, if you have a parliamentary government with proportional representation, this could work. However, if you relax either of those two constraints, the theory falls apart. For example, what if your country uses first-past-the-post voting? Now, its not 10% of voters deciding, but 10% of the districts. In order to influence the elect, you have first live in a "swing district". Given the level of gerrymandering here in the US, the chances of you living in such a district are very small indeed.

For example, lets take Minnesota's 6th District. Even an absolute loon like Bachmann can get elected there because the district is so heavily weighted towards Republicans, the Republican primary serves as a stand-in for the general election.