Pretty much every Indian language I can think of satisfies these criteria, actually. The lack of centralization and a generally rich heritage naturally gives rise to this, I think. Also, glad to see other Tamil speakers here.

Japanese and Chinese do this as well. Lots of different formality levels, and every region in either country has dialects that are incomprehensible to an unlearned outsider.

In Japan, everybody learns Standard Japanese Pronunciation, and I've never had a problem getting around even in the boonies.

In China, I believe there are still a lot of people that don't speak Standard Mandarin, but this number will continue to shrink thanks to the explosive growth of high-speed (Radio/TV/Internet) media in China.

I stand corrected! I guess since each dialect gets a country or two to itself it's easier to notice the situation with Arabic.

Finnish, my native language, has this to a lesser extent. Historically, there has been a significant regional variation in spoken Finnish (although modern communications and inexpensive travel have greatly diminished the differences), but the more formal the context, and the more diverse the audience, the closer one's speech tends to the Standard Written Finnish.

To some extent, isn't this true for English as well, at least in the UK? Many regional dialects are almost mutually unintelligible, but everyone understands Standard English (aka Received Pronunciation or "BBC English".) Perhaps in Arabic the differences are even more about vocabulary and grammar, not just pronunciation?

And in the US as well. There are some isolated regional accents that are virtually unintelligible to people from other parts of the country. It's not perhaps quite as pronounced as in the British Isles, but it's definitely there. But everybody understands a midwestern accent (the kind used on national news broadcasts).

For a while there was even a neutral American British accent used in major broadcasts and films...but it's since dropped by the wayside.

http://en.wikipedia.org/wiki/Mid-Atlantic_English

That's sort of confusing. In a number of places I've read an explanation that what is described in the Wikipedia article as "Mid-Atlantic English" was in fact higher class New York English before WWII (one of its most characteristic features was a non-rhotic "r"). These sources also tend to use Franklin Delano Roosevelt as an example of this sort of accent.

For example: http://en.wikipedia.org/wiki/New_York_dialect#History (that article quotes the

It's sort of both.

You're right that it's a mostly defunct upper-class accent (see Kelsey Grammer for a modern example) taught at boarding schools.

But it was also specifically taught to thespians as a preferred accent for radio, television and film performance in the early part of the 20th century. Performers like Cary Grant and Katharine Hepburn both performed in it even though it wasn't their regular accent.

In some stage acting schools it's still taught as a "neutral" accent for performance.

Going back in history about five hundred years, I wonder if you could compare the Arabic dialects vs. classical Arabic to Romance languages vs. Latin.