I don't know about the wood. but I have always used a cilinder of cork, from a bottle of wine or champagne, to close the lower hole of the for tubes, so the dirt and water doesn't grow inside. Cork works much better than wood for many reasons, cork does not absorb water, and it's softer and will compress and adapt better to the cylinder.
At the "Stalen Ros" in Gent/Belgium i had the opportunity to discuss this topic with an real italien framebuilder: Marco Gios!
He explained as follows:
It's a comfi issue. The proriders in the 70's and 80's explained, that the wooden Plug lowers the rattling and the hard tosses, especially on kobble roads. So the frame builders applied these plugs to the forks.
One personal note from my experiences regarding the Plug: Later the other framebuilders took over this habit and used plastic plugs instead. ( BASSO for Example).
GIOS Compact '88 (40th Anniversary) http://www.giostorino.it/images/stories ... rino67.pdf
GIOS MTB Prototype '87
GIOS Super Record 1979