So what happens is this:
- Initiative is rolled. Players roll individually, the DM makes one roll.
- The surprise round, if one occurs, is handled.
- Any PC:s that beat the DM on initiative can act. In whatever order they like.
- The monsters act in one huge block.
- It's the PC:s' turn again. With the looping initiative of 3.x and 4E, Players and DM now take turns acting.
As Ars Ludi points out, this nudges players into cooperating because it's never really "not their turn". Also, for play-by-post, it speeds up the game when players don't have to wait for each other to act. It's been working fine in the four fights we've had so far.
One downside is the potential for double-dipping: One character can go first in a round and hit a monster with an effect that lasts until the end of his next turn. Then he goes last in the next turn, letting all the other PC:s benefit from it twice. In practice, this isn't a huge deal (and monsters can sort of do this too, so it evens out), but one could enforce a policy that characters only get to benefit from such effects once. (That sounds like it would be annoying to track, though.)
Mike Mearls had a similar idea, with the added step that there is a "group cleanup phase" at the end of the PC:s' turn instead of each player's turn, where durations are tracked.
Hey, try it out. Three geniuses can't be all wrong.