Vondoom -
I agree that graphics shouldn't have to be cut back since they are stored on your hard drive and only the positioning is handled by the servers, but if you play UO you will quickly see that the graphics there are antiquated. Maybe it's because the challenges of developing a persistent world were of a higher priority so graphics took a back seat, or maybe they just weren't a priority at all.
In any case, I sorta foresee the same thing happening with any future MMP space sims. Granted, they would probably still look nice and be 3D rendered to perfection, but I think the image complexity would take a pretty big hit.
Not that it really matters. MMP space sims have a lot of challenges to overcome, a good reason why Freelancer isn't out yet, even though it apparently will bypass some of the major obstacles by slowing down the gameplay.
With a space sim, you automatically have X,Y,Z coordinates. Right from the start that has to complicate things. Then with all the tracking missiles and so many PC's flying around, I imagine it would be a very difficult task. You also have to throw in customized paint jobs for ships, battle damage, and different configurations just to make things tough.
Not only that, but you also have to develop a UO sorta setting for the bases, planets, cap ships on which you land so that you can get to know your fellow pilots, get missions, sell/buy cargo, outfit your ship, and so on. IMO, thats where the real excitement would be. Also, I REALLY want to be able to have my own quarters somewhere just for the hell of it.