Ultima VII has remained my fondest memory of an RPG. It was a world that, in comparison to its contemporaries, was practically alive, a living, changing place (that I could visit with my specially tweaked CONFIG.SYS and AUTOEXEC.BAT). I think TES has done a good job of taking up the mantle that Ultima VII set down, but for me nothing will duplicate the childhood wonder of encountering the level of immersion and detail that Ultima VII offered.
About simulations: after playing MUDs I wished for evolving worlds, player clans with the ability to claim territory and build structures, NPC factions that battled among themselves, ecologies, simulated NPCs that responded to invasions and events, the works. These have been achieved to some extent in recent games, but maybe the magic lies in the storytelling in the end.
Maybe what we need is professional scripters running MMO cities: imagine Lord British essentially playing himself as a full-time job, with the ability to spin quests and stories that permanently change the fabric of the world, fight off invading lords, launch expeditions, rezone areas, fund guilds, run his realm. That way we can have complex world simulations, player-driven clans, and the human storytelling element, all richly combined.
(I wish I'd played UO, it sounds fantastic. Realistically, I won't have the time or energy to play SotA intensively, but I'd certainly like to try it. Too bad it isn't 2.5D isometric...)