Another thing which hugely contributed to the demise of UO was the introduction of Trammel.
The game itself was very much about a world where the player was free to do as they pleased, to choose to be good or bad, to form communities within the game adhering to commonly shared beliefs, be they "right" or "wrong". The game was alive with the kinds of activities and stories only possible in such environments. Sure, people didnt like that it was a rough and tough world where leaving the safety of the towns was REALLY leaving the safety of the towns, some complained and cried out for a place where such things wouldnt happen and the world was a safer place... what they didnt realise at the time though was that by making the world a safer place they were removing a crucial dynamic to the game, in effect changing the very premise (freedom of choice for the player to be and do what they want) the game was built upon.
So Trammel and Felucca were invented to replace the single old dangerous world. The result? People flooded to Trammel where they wouldnt get hurt, at first people were happy... but then after a period of time they realised that things had become stale and dull, the challenge of their characters existence was gone and without challenge things become very boring and so they left.
At least thats how it all worked out for me and my friends. We found solace at the time in Daoc we recaptured some of the dangers of early pre-trammel UO to an extent.