Rafterman,
I'm sort of in the throes of a dilemma about making a diorama, too - what to use as a base, what materials to use to make some built-up ground, etc.
My (planned) dio is to set a 1/72d Tiger I in a snow scene - I'm more or less copying a picture of a Tiger from a book about the Cherkassy pocket. I'm going to use MDF also, 12.7 mm thick. I think it would be a good idea to put commercial grade primer paint on the MDF before adding any modeling compounds - MDF soaks up liquid and leaves a stain, so if you were to use either spackle (drywall compound) or a paper mache type stuff, I think the MDF would suck the liquid out of the material, thus leading to a bunch of cracks in your diorama surface.
How did you like the Osprey book? I was thinking about putting my money down and getting a copy.
BTW, I finished an A/V stand recently - made out of MDF. I used a roller (primarily) to put both primer & finish coats of paint on it, but much to my surprise, the medium nap roller didn't give a complete coverage of the MDF - I had to go back with a brush and do quite a bit of touch-up.
HOpefully, this post, once you read it, won't be a day late and a pound short, but...
Look forward to hearing the results of your efforts!!