At present the only way to see what is being updated/changed is to set the projects combo to "All Projects" and sort by last updated.

This is not the only way.
You get nearly the same in box "Recently Modified" at "My View" page, but you will still not get the lastest activity.

Yes you could use the My View area, but you still can't tell what changed, and it only gives you 10 items.... So IMHO not very useful.

Hence why the above would be more useful and could just update on the side, like the sidebar on Facebook.

I am aware that "My View" is not 100% what you need.

and it only gives you 10 items
You can adjust my_view_bug_count to get more than 10 items

This can easily be done as a plugin.

Such plugin can also support a feature to email every morning a summary of what happened the day before. I've worked in a company before where this was an approach they used to keep their developers in sync with what's going on.

I would also be interested in seeing this - I am after a way to generate a summary of activity over a day or a week so that colleagues can be sent an email - not quite like the reminder package but a summary to indicate number of issues added, resolved, closed and the number of outstanding issues.

You always can start querying the history table.
In raw shape it would look like "SELECT bug_id,summary,username,type, field_name, old_value,new_value, DATE( FROM_UNIXTIME( date_modified ) ) FROM mantis_bug_history_table, mantis_bug_table,mantis_user_table where mantis_bug_history_table.user_id= mantis_user_table.id and mantis_bug_history_table.bug_id=mantis_bug_table.id and DATE( FROM_UNIXTIME( date_modified ) )-0 = UTC_DATE()-1"

I thinks this is covered by the timeline we have in 1.3, see 0017397