Well, here is where real life can step in. Damage becomes percentile and server side. Damage also becomes localized. So, if you attack say the left leg, and keep attacking the left leg, as long as you are able to hit your target then your attacks will slowly (or maybe instantly, depending) render that limb immobile, or worse, cause so much trauma that they may die. Injuries should be visible. If you smash an enemy with a mace hard enough, you should see the cuts from the flanges, yes, but you should also see the bruising from internal bleeding.
That last part most likely just drove any graphic designer out there insane, however here is the other issue with the current MMO market. Just because you have a great idea for a system and that technology is not close enough to make that system perfect doesn't mean you scrap it. While it would be great if all of the player models and creature models perfectly showed damage and whatnot, you could get the same success with a small HUD of sorts to quickly relay this information as well. You could even make this a skill of sorts, making it so more skill would increase detection, and skill way above and beyond your current target could even point out weak spots.
Of course, this eludes to 'skills' being part of the game, and that will be covered in a later post. Skills aside, this creates incentive for players to be selective on how they attack creatures. Something like a lizard, attacking it's chest would be incredibly hard, but it's back easy. The lizard could have strong back scales though, and it's chest scales very weak making it a risk vs. reward scenario. Luck out, or go for the consistent kill? This would make things even more lucrative for the 'skilled' FPS players. Imagine the prowess of a seasoned FPS-Sniper veteran, able to do amazing things with a bow/crossbow/gun? The skill of landing a perfect left-eye shot would be hard to do. Especially if creatures aren't just standing like logs.
However, this also makes you look at equipment with a hard, long look. In a game with exacting standards on 1v1 combat, you can create a very complex, yet easy crafting system. Remember, keeping things realistic requires you to really try to stay away from numbers in places that they shouldn't exist. Weights should be numbers, but not 'how sharp?'. Those numbers should be explanations. So, do you go for the barely-sharp edge or the well-honed edge? Very quickly, you can expect one to cost more. This would make low level combat take about as long as very high combat, and keep a natural progression of weapons. On top of that, with weapons becoming more about preference than anything, looks begin to play a role in crafting too.
Tomorrow I'll start drilling down that crafting system, as I personally believe it to truly be the base of an MMO.