Looks cool, though is sounds similar to this game, LOVE by quel solaar with the whole 100-200 people per server.
http://www.quelsolaar.com/love/index.html
The problem I see with this method, is that even though the whole low pop per server thing will create a world where everyone knows eachother, what happens after the hype has worn off, or if servers just decide to leave, the only way I could see of fixing this is taking inactive players off of servers.