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They didn't make DDO in the Forgotten Realms campaign setting. FR Campaign Setting = D&D in its finest hour. Probably the biggest mistake Turbine could do basically. From here it was all downhill.
My guess is that DDO is just AC2 recompiled for the D&D campaign more or less, and to cut production costs and server costs they just made everything instanced.
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actually IMHO its alot easier for a game to create a non instanced world. It's alot easier to create zones and plop in a bunch of mobs then make interactive instances... but some people like going out in the world and grinding mobs.. I don't know why.. but they do...
I have no problem with the instanced dungeons/campaigns of the game. I actually prefer it now that I have been playing it for a while since I don't worry at all from people that want to grief.
Just my 2 cents.