Well I'm using Moodle as a bit of a pilot for my school, I'm running the whole thing alone and only I'm using it, but I like to play with the new toys I get given when they arrive so I've been messing with badges too.
I've been playing with awarding them for various things but it's exam season now and no pupils are actually doing any Moodle work so feedback is quite hard to come by. I'll give you my ideas though:
I've set every activity to award a badge on completion. My completion settings are set to only allow activity completion if the student scores above a certain grade, and attempts is set to 'unlimited'. The idea is to encourage pupils to do activities over and over until they get a good grade, thus learning the material much better. This is of limited usefulness with multiple choice questions as they tend to just click submit before attempting the quiz, get all the answers, write them down and input them. Fortunately I teach physics and this can't be done with a calculated question, so I use those extensively.
I also award a course completion badge. Since the completion settings for each activity are set to only allow completion on receipt of a high enough grade this is aimed at encouraging pupils to complete every quiz in the course to a high standard to fill any gaps in their knowledge or understanding.
I've dabbled with giving out badges to teachers who try out Moodle, but they are far less bothered by them than the pupils.
In the future I'd like to award badges based on scores so I could give gold, silver and bronze badges for the same task with the very strong students striving for a complete set of gold badges (along with the big course completion badge) and lower ability pupils aiming for the lower badges but still being rewarded for completing activities. This isn't possible with the badge system at the moment though.
I'll give you a bit more feedback about how this has worked when I actually see some pupils, which is likely to be around September now as we're off on Summer holidays in the not too distant future.
Hope this helps.