Being a graduate from a local private university in Malaysia, I can at least say that I've got some sort of experience with the local system. So, I can at least make an informed comment on the subject instead of just using pure speculation, like what most of the kids discussing this issue would do.
Today, I read this article about why local public universities will not flourish. I agree with the comments on the article, especially with regards to point #3. In the university that I was in before, a professor would need to publish at least 3 papers to get the same number of brownie points as a 'kerani' who attends a national day parade for the company.
While I can see that it's a move to give everyone an opportunity for promotion, it makes a farce of the whole idea of universities as places of academic excellence. However, does this mean that local universities are not as good a place as foreign universities? That is where I disagree with most of the kids.
My personal belief is that one function of a university is to provide a person with an environment to gain higher knowledge. Ask any academic and they will tell you that a university isn't about teaching, it's about learning. There's a subtle but very big difference in the two activities. A student will learn as much as he/she wants to at a university regardless of the teaching method.
So, whether or not a university's teaching system is good, isn't really the point here. An undergrad should be perfectly capable of self learning. In which case, whichever university he/she goes to doesn't really matter as long as that university provides the necessary support structure for learning. I personally think that the support structure is more important than anything else.
First, access to necessary facilties, equipment and tools. You need tools to get something done, whatever your field may be. The tools may be in a lab, or may be something that you can buy from a convenience store. It all depends on the actual field of study. In this case, which university is better will entirely depend on whether or not you can access the necessary tools through the university. There is no point having world class facilities if undergrads aren't allowed to touch it.
Second, access to relevant reference materials. This will include publications and books. In this day and age, Google is probably the most convenient source of information. Things that you cannot get online, are often available in the library. Especially true for standard texts, which are available in practically all universities (and your local bookstore). Those things that are not available, can usually be ordered. So, once again, whichever university you go do doesn't really matter as long as you have access to the materials.
Third, access to a mentor or a guide. In my university, I had a lecturer who was always encouraging me and pushing me to do things beyond what was necessary. In fact, he was pushing me to do things that were not his subject matter. The point that I'm trying to make is that a guide, doesn't necessarily mean a subject expert, but rather someone who can help you along the way. Without his encouragement, I would probably not be designing processors for a hobby and not be doing my PhD in this field now.
So, from these three points, I put forth the case that, if you're looking to learn something at university, which university you go to doesn't really matter. What really matters is the individual person and access to the support structures, which are pretty similar wherever you go. If you're looking to be taught, you're already screwed whichever university you choose to go to.