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Real-world governments can be (and in the past have been) overthrown by the people. Muds, on the other hand, cannot - nor can the admin of one mud decide to "liberate" another; their power means nothing outside of their own game. You could have the mud equivilent of terrorism (bringing down the mud or its server, destroying data files, etc), but even that would have limited (and temporary) impact. Fortunately, unlike the real world, if you don't like your mud "government" its very easy to simply move elsewhere (or even create your own mud).
That is a dictatorship giving the illusion of democracy. The power rests in the hands of the players only for as long as the Arch Wizard wishes - and should he wish to disband the existing mud "government" (perhaps because, as is extremely likely, it was ruining the mud) there is absolutely nothing anybody could do about it.
The Arch Wizard (or head implementor, or whatever you wish to call the owner) is not the equivilent of a president - they are the equivilent of god. They create the very world in which people play, define its rules of reality, and are answerable to nobody. They can give others the right to run a democracy - and they can take that right away. They can be a "good" god or a "bad" god, they can rule with an iron fist, or ignore the players entirely, but at the end of the day it is always their decision. And that is what a dictator is - someone with absolute power.
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