In the new game trailer for Soul Calibur 5 http://www.gametrailers.com/video/character-creation-trailer/723519 they show the awesome character customization ability. This is quite well done, and while not exactly the same as something like Spore, where appendages and weight changes, it is nevertheless still quite impressive.
While it is amazing technological work for a two player game, currently this type of extreme customization wouldn’t work in an MMORPG. Not to say you couldn’t have customization in an MMORPG, it happens all the time, but even then 100s or 1000s of characters in a town would likely bring even the best gaming computers to a crawl as every texture and separate geometry tried to get rendered. Sure, there are tricks that can be done (different level of detail, texture resoultion sizes, combining as many pieces into a single draw call, replacing similar pieces into one piece, etc.) most of these however have the distinct chance of making all the other characters look similar and simplified (which is not what extreme customization is about).
There will likely be a time when every character, tree, rock, brick, stone and even blade of grass is unique, but until then, one of the main problems I have seen with game designers (and developers) going down the customization path is knowing where to draw the line. It is very important (crucial) to establish how much customization can be allowed by the player and whether it can be supported. If you want to go the Second Life route, you will have to make sure the engine was designed with that specifically in mind. If you find yourself worrying about how to render each character’s belts, earrings, shoelaces, cufflinks, ties and shirt pins you have likely gone too far (perhaps even off the deep end).
Computer games (and graphics) are mostly a series of tricks, but you would need a whopper to trick the graphics card and cpu into rendering outrageous customizations in an MMORPG without it running like a screen saver. Still, the Soul Calibur customization sure is pretty, and it will only be a matter of time before someone tries to do that with 100s of characters (hopefully the computers in the future will be that much better).
Best of luck,