What can we do to increase student engagement? My University has recently started recording lectures and posting them online. We have also, in the past few years, noticed a considerable drop in lecture attendance across the whole Physics and Astronomy department (even in courses that are not recorded).

I expect that the advent of recorded lectures is a significant contributor to this. However in the tutorial classes as well as lectures, it wasn't uncommon for attendance in the course I was TA for this semester to be below 50%. Myself and the lecturers are at a loss.

I am not necessarily against offering pittance marks for attendance, however I think that it is rather poor practice as it does little to encourage students to become genuinely interested in the material. Encouraging students to discuss science among themselves and become emotionally invested in the topic is the best way to get them out of bed and attending classes.

Does anyone have any "success stories" to share where they have significantly increased the level of student engagement in their course(s)?
My school has a mandatory attendance policy (which I know several members here disagree with) but because of that policy I have had to face with engagement in a different way that you. Still, I hope this answer will help.

Without engagement I find myself in large classes (sometimes >100) and classroom management gets to be a real challenge (for me and the other students). So, after trying a few different things I've found that challenging the students almost like a game show seems to be useful.

For example, in one module, I will give them scenarios (one at a time) to analyze (with multiple choice answers where each requires them to come up with their own reasons why that is the right answer). The scenario is short enough to fit on one slide and while the students are encouraged to read before class, they can still participate even if they did not do the work. This is particularly helpful to me since the ones who do not do the homework tend to be the hardest to control and, therefore, are the most disruptive to the learning environment. They tend to find it a challenge to see who can 'guess' right.

On top of this, I try to inject a little humor while walking around the room asking for analyses which tends to add a little entertainment aspect to the whole event.

For another module, I assess through an extremely difficult test which is quite common to fail unless extensive research is done. In this case, I alternate lecturer sessions (where I do most of the talking) and discussion sessions (where students do most of the talking). Engagement is not quite as strong with this module but I'm still honing it.

On a somewhat related note, you might check into this article on discovery based learning. I found it quite interesting.