TSR hasn't seemed to be very vigilant about free muds. Don't try to make any money off their stuff, though, or they will come after you sooner or later.
I've noticed that there are many Dragonlance themed muds and muds with kenders. Some muds are even using copyrighted Dragonlance art on their webpage. I'm pretty sure that none of them have heard from TSR.
Anytime you're not using originaly work, though, you risk the owners of that work having a problem with how you're using their intellectual property. So, it's probably a "do so at your own risk" type of situation.
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