Someone told me that heat generated by the incinerator is used to heat some council buildings. Does anyone know if this is true, or is it just a PR spin for the incinerator?

It's true...

http://www.greenenergy.co.uk/gc_can_u_connect.asp

click on district energy tab and the network.

I worked for Onyx briefly (and thankfully) and there is a block of flats on Victoria Quays that is heated this way.

If you are willing to pay to connect to it I believe any building from the Moor down way beyond the train station and up over the valley can connect to it. I looked into getting a building just above Division Street connected but was refused due to the modifications to the area around the fire station. This was a year ago though so I'm not certain that will still be the case. I think it takes 20 years as well before you get any saving back from the increased cost. Still worth it though in my opinion.

The heating in the council tower blocks at Netherthorpe comes from the incinerator.

And quite a lot of University buildings too. Most of the buildings around where I work have district heating (but not the building I work in for some reason).

There is quite an extensive network that runs from the energy recovery plant across the City Centre. Various buildings such as the Town Hall and Howden House, Ponds Forge, City Hall, Hallam University City Centre Campus buildings, Sheffield University buildings, Central Teaching Hospitals, Netherthorpe flats, Park Hill, Harold Lambert Court, the MacDonald hotel, Crucible and Lyceum Theatres, Central Library, Winter Gardens and Millennium Galleries are but a few buildings that receive heating and hot water from the Combined Heat and Power system. It's not restricted to large buildings either, as the former Deaf Club premises near the Graduate pub are also on the system. The plant also generates electricity that is fed back into the grid, providing a profit share for the Council and it's partner, Veolia Environmental Services (formerly known as Onyx). The network is currently being extended around the Charles Street area for the new buildings there to link up and around the new Retail Quarter for that development. The new Markets down the Moor will also be linked up.
In addition to providing cheaper heating, the system benefits by reducing Carbon emissions across the City.