Tobold brought up an interesting discussion about allowing players to craft small, instanced adventures. Then Cameron offered his own thoughts on the subject, referring to some Ryzom feature I'm not familiar with. Well, here's my take.
I would do it much the same as Bioware did it with Neverwinter Nights and their Aurora toolset.
Allow players to to create adventures with complete freedom, but make players host those mini-games on their own servers... capable of handling only a limited number of players, obviously. If the modules are mostly small pocket zones (I prefer that term to "instances"; do a search for my old blog on that subject), then players can host the games for free, like they do with many single-player games. Interested players would download the modules off of various fansites.
Naturally, players would voice their opinions about the modules. Player communities would gradually weed out the poor modules and praise the good ones. Like with Bioware and NWN modules, the MMO developer could simply wait for fansites to point out the real gems, and then incorporate those adventures onto the MMO server.
The developer could choose to charge for the incorporated content "expansions", but the developer's already being paid in a way. By expanding the game, as well as creating publicity about old content, free player-created expansions would both attract new subscribers and help retain old ones.
So now for the catch.
If the player-created content is originally oriented for play off the MMO's official servers, then players must have a program to create stand-in avatars. The player can't use his or her character from the official server, because that would allow exploiting (like levelling up a player and finding epic loot in the mini-games, then importing those advances into the real game). No exporting/importing could be allowed between the official servers and the player-created content.
But that's really not such a big deal, in the long run. A character editor program could be created fairly easily. And if Battle.net was able to prevent the use of edited characters on their servers for Diablo 2, then an MMO developer/publisher could, too (though perhaps Battle.net had less success than I think). Players wouldn't like not being able to use their official characters for the mini-games, but they would certainly accept it if it meant more and interesting gameplay out-of-game and in.
No doubt, some content creators would come up with some interesting peripheral uses through the toolset. Someone might create a WoW sports game, for example. If it proved popular, the developer could reward the creator and make into a new IP. I'm sure there are many inappropriate possibilities as well (like MMO porn). But if Bioware didn't have much trouble with inappropriate NWN modules, I doubt an MMO developer would have to worry about it much more (though that's not denying that there may be important differences).
In short, player-crafted adventures seem feasible and promising. Unless there's something I missed (not unlikely, I'm sure), I hope toolsets like this are in common practices five years from now.