If I understand correctly, the Alternative Vote would be an improvement in some ways, and in other ways would actually be worse than the first past the post system we have now:
Electoral Reform Society: Alternative Vote
It can end up being less proportional than FPTP, and has all kinds of other quirks. It can do serious damage to the prospects of candidates who stand on a platform of compromise between two highly-opposed stances being taken by the other main two parties.
On the plus side, with AV people don't feel as if their vote is being wasted, irrespective of who they vote for. So that means an end to tactical voting. Also, we'd keep the same constituencies which would save a lot of money and a big bureaucratic headache.
If your main concern is how representative the electoral system is, then there are other systems that score better on that count. I think
Single Transferable Vote is the one the Lib Dems had in mind before they jumped into bed with the Tories. It's what they use in Ireland and in local elections in Scotland.
STV also makes people feel as if their vote counts. It is more proportional. It gets rid of safe seats and increases competition between candidates (theoretically) giving MPs more incentive to make their constituents' interests their interests. But, it means redrawing every constituency. It is also a more complicated system for the voter in the ballot box, and there are methodological disputes over the best way to count ballots.
Wikipedia has more info on this. There is also a question about doing damage to the link between MP and local constituency that has been the bedrock of British politics for a long time.
There was
a bit in the Guardian about how the results of the election we just had would have differed under different electoral systems.
In this election the Lib Dems got 23% of the votes and 57/650 seats (8.8% of seats). Under ATV they would have got 79 seats (12.2% of seats), and under STV they would have got 162 seats (24.9% of seats).
So I think that if you want a fairer voting system, STV is preferable to ATV. But STV doesn't seem to be on the table for the time being. So the question becomes is ATV better than FPTP? Some would say it is, because it makes every vote count, and it could be the first step on the path to STV. But on the other hand, it's possible that if ATV got pushed through, the political momentum towards electoral reform would be spent, and it would fall off the agenda for generations to come.