The quality of painting in my local group is amazing (we have a Golden Demon in our store's display case from one of our premier players), so this sort of thing has never been an issue for the most part. Often though we will use unpainted or unfinished models while testing out a new army or tactics, or sometimes use a proxy model before commiting cash to something expensive ( I played with a toy owl yellow-tacked to a 60mm base to stand in for Gwahir in a recent game ). But most of us won't play models more than once unless we have them painted up pretty well. But because this isn't very common we're very understanding when it has to happen.
One thing we're doing to help encourage some painting of new forces as we're getting into WotR is running a Tale of Gamers. This could be done very easily for SBG or WotR and if you have at least 4-6 local players it can be really fun. Fewer than that and there may not be as much compitition but you can still have bragging rights. If you have a local store you're all buying things from you may even be able to get them to sponsor the competition by giving a blister or box of plastic warriors to the winner (the cost from their inventory would be far less than the money they make from 4 or more players buying models and paints every month).
The way ours works is basically this:
Everyone picks an army. We set a level of 250 points per Round. You need to prove to the other players that your 250 points of models are unpainted (pics, show them the box, talk them into buying them for you, whatever works). Then you have a month to paint them up. In SBG this will give you an average of one unnamed Hero and most of a box of plastics, for example. In WotR it can be significantly more unless you're adding in Command or Heroes or more elite Formations.
Everyone shows up on Judgment Day. Any models not painted to at least "table top standards" don't count. This usually means 3-4 colors ( flesh, armor, cloth, hair for example ) plus some flock or sand on the base. This level will get you a basic amount of points ( example: 3). If they have highlights, shading, finished bases, etc. then you get +1 point. If you did detail work on all models and/or have some conversion work then you get +1 point. So you have a max of 5 points for painting. All participants also vote on their favorite for that Round and the winner gets +1 point.
You then play some games with those models. Generally 2-3 per Round, and the winner of each game gets +1 point. So if you're a decent painter (4-5 points) but a great player (+2 or +3) then you have as much chance of winning the ToG as a great painter (5-6 points) (assuming that person isn't also your best player!!!). Any models disqualified from the paint competition CANNOT be played so be careful.
You add another 250 points each Round and repeat as long as you want. You only judge painting each Round on new models but all models in your ToG army so far are played. Set a goal of how large your final army will be and pace the ToG appropriately. If you all have busy schedules maybe use fewer points or go more than 30 days. If you're all crazy-mad with free time then up the challenge.
The thing about this (as the ToG here on the board as well) is to encourage the painting rather than punish the lack of it. Some players just like to play though and have little interest in the painting side of things, but if there's gaming involved with a prize at the end then they may think otherwise.
Our local game board ( Elite Hobbies Online ) has a subforum for our ToG. Our Round One just completed recently and we're working on Round Two for later in October. Here's our Round One Results thread:
http://www.elitehobbiesonline.com/phpBB3/viewtopic.php?f=19&t=1219