Reverse my scenario then: suppose the players are trying to invade another kingdom and conquer its lands, but rather than reworking all your areas to reflect this, you simply decide that no matter what they do, you will thwart their invasion (I've seen this happen before.) The scenario is equally unwinnable, and equally harmful to the playerbase.
If the dragon is killable, then the players have a way to win: I fail to see how this helps your either your argument that no-win situations are beneficial or your argument that upsetting players would make them want to play your MUD more?
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