That stuff never really went away. We had BBS doors that did that (LORD 2), and full multiplayer graphical RPGs. Those features just weren't advertised as hard. There was a big MMO sub community in Neverwinter Nights, It was like having a whole bunch of free MMOs to play on. Find whatever one suited your preferences, or start your own. Just the mainstream MMO games turned into those treadmills to nowhere.
Thats a very good point. Not many seem to remember that most (if not all) MUDs had a staff (wizards, creators) that worked on new features or expanding the game world and that it was done dynamically, without strict release cycle. Things were done and deployed on the fly (depends on a MUD type, but most drivers/mudlibs allowed this). Somehow from a dynamically expanded game world that introduced unknown changes that had to be discovered by players we went into same-for-all experience with strict releases (expansions) that are consumed by most active players in 1/100 of time that took to create it. A pity really.
There must be some Second Life communities that have thought up some good designs?