new book entitled "Character Development and Storytelling For Games" is out! You can pick it up at your local bookstore or at Amazon

Although it's not focused exclusively on muds, a substantial portion of the book is devoted to storytelling in muds (as that's what Lee's main interest is these days). There are also short essays in the book from legendary designers/writers like Steve Meretsky (Planetfall back in the day), Hal Barwood (the Indiana Jones games), and not-so-legendary (yet! ) designers/writers like Mark Barrett and even myself. My essay on using politics in muds is included below:
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What do we mean when we speak of "constructive politics?" For our purposes, we'll define politics as struggles for power over fellow man via some sort of organization and involving a major non-violent component. In other words, standard PK-oriented PvP isn't what we're talking about here.

Constructive politics are those politics which are interesting to some decent portion of your players. In a MUD (text or graphica), this might take the form of anything from an election for Guildmaster to negotiations between city-states over the status of an accused war criminal to formation of a trade consortium in order to drive up prices for a particular product. We'll briefly look at two major reasons why a political system that allows for large-scale player organizations can be of significant benefit to story creation in a virtual world.

The first is immersion. In order for players to become immersed in a story, they need to buy into the world first. It's no use crafting an epic story for your players to participate in if they don't take the milieu seriously to begin with. By creating political systems that can rule organizations with some level of control over a part of the world (such as a city-state), the power of players to influence the world around them in a structured fashion is increased, which facilitates immersion in the world. Ask yourself what's more likely to grab a player's interest: Going to the local Baron's castle to "talk" to an NPC that is nothing more than a quest dispenser, or to go down to the local Baron's castle to demand that your Baron do something about those darn Druids and their restrictive policies on harvesting herbs in the nearby forest? They keys here are that the organizations have to be able to exercise meaningful control over the world around them, as otherwise there's little reason for the organization to be important to anyone but the members themselves, and the organization members must feel some ownership over the organization (often accomplished via democracies and republics).

The second is broader participation. One of the major difficulties in MUDs of any size (even the larger text MUDs) is creating a design that will allow for valuable-feeling participation by more than just a handful of players. Using the political structures in the game as actors lets story flow down from the leadership to the organizational membership. If one allows only individual action, or action by very small groups, the stories of most individual players will be fairly chaotic and lacking in cohesion. On the other hand, by treating these political structures as actors, the players within those structures are similarly empowered to a greater extent than otherwise possible. Instead of 10,000 people purely doing their own things, which is little more than noise, you might have 50 political structures that players focus some of their effort through. Providing the organizations have an ability to impact the world in real ways, this allows story to emerge from the web of relationships and inevitable conflicts between these entities. It's the difference between interesting complexity and indistinguishable chaos.
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--matt