I have never visited Spain, although I would like to, so I have no actual experience hearing the ceceo in action, other than a Spaniard away from the homeland...

The tu/vosotros thing is fairly well established in most areas. Vosotros is not commonly used because the speaker's audience must consist entirely of persons with whom the speaker is on a familiar basis, and that is rare, outside of a group of friends. The ustedes form addresses everyone respectfully, and therefore is "safer" to use, without risk of offense. Vosotros is used with greater frequency in Spain, and therefore is taught in Spanish courses, but generally only introduced and shown, and not required/tested.

"Lisping king" controversy fuel: http://spanish.about.com/cs/qa/a/q_lisp.htm