How can one successfully run a reading group? This is related to "Skimming through a math paper with a group" and "What do professors gain out of teaching reading courses with individual Ph.D students", but from the other side :)

I've experimented with various ways to run my advanced Ph.D seminar, ranging from almost-lectures to "students present papers" to "students present textbook-level material" to "let's all work on a problem together". I don't think any of them have really worked to my satisfaction in the sense of ending the semester feeling that students have a command (as opposed to knowledge) of the material. 

I've been reading about the Oxford tutorial style approach, which can crudely be approximated by:


professor assigns reading material once a week
students form pairs and meet with professor once a week for about 1-1.5 hours.
students run the meeting (maybe one person presents and the other critiques, or they work out shared portions of the material on the board). Professor keeps quiet as far as possible except to unblock. 


This format sounds tempting, as something that might work with a small group (at most 10 people). Does anyone have experience with this format and would it be suitable for advanced material at the graduate level ? 

While I'm hoping it doesn't matter too much for this discussion, the topics for the seminar would be in theoretical computer science.
Although it's quite a while since you posted this question but here's what I've seen been extremely effective (when I was a student for those courses).

Course 1: A theory course with reading and understanding of advanced material


The professor took great effort in actually explaining everything using a chalk and board (better than PowerPoint for theoretical course IHMO). Of course, we were told to read the papers but he explained as if teaching in a chapter/concept in the lecture. Thereafter, he'd assign us some homework problems and we were allowed to do them in groups. Now, these HW problems were really innovative. They weren't part of any book. He would actually "create" them based on the ideas he was teaching. He would cast an existing problem, either from something he was working on or just create one and ask us to solve it. THAT was the master's stroke, IMHO. The entire class would bang their heads against the wall to solve them and learn a lot as a result. We could solve the problems but not always, but the fun part was applying what we learned, consequently requiring  us to understand the material really well.


Course 2: Exact same format as you mentioned as well as that suggested by @lynxoid


Nothing learnt. Honestly. Only the people assigned the papers actually read them. Maybe a few questions here and there but very little interaction other than some from the professor. Overall, the students weren't really happy with it. I barely even remember half the things from that class. But for the former, remember almost everything.


Another variation you could try with style #1 (I read about this somewhere): Tell them that you are going to tell one "lie" (false information) when explaining the material. They have to spot the lie by the end of class. If they don't, they have learned something that is not true. If they spot it, a small reward like a chocolate else, it's a HW due next week. This drives them nuts. You can make the lies progressively complex and sometimes not lie too (You can say that you lied when you told them that every lecture would have a lie :) I haven't tried this variation but will do so soon. I feel this is an excellent way to get them to master the course content.

Hope this helps