The guys at MMORPGDot have published an article entitled "Instancing - Panacea or Pandora's Box?", in which they look at the advantages and disadvantages to instancing in massively multiplayer games. Check it out:
So where is this current love affair with instancing taking us? If the success of World of Warcraft and the proposed design of Dungeons and Dragons Online is anything to go by, to a destination that will be arrived at through an instance portal. Both MMOs make heavy use of instancing, with World of Warcraft's developers adding new content via the expedient of slapping down a portal in an existing area, and adding yet another raid instance beyond, while Dungeons and Dragons Online's developers, it appears, intend to make the entire world a latticework of interlocking instances over which travel will be represented by a red line.