"One solution would to do like Morrowind does (and presumably Oblivion), and use portals. When you entered a house, you'd be transported to a new instance. That way complexity could be reduced, but on the other hand you'd get tons upon tons of loading screens, and walking around in town could easily get very tedious. Not to mention making finding people in towns very hard."
In another MMO I play- this is how it is handled. Actually, my hardware is less strained by this as there is much less to draw. There is 1 load for each instance. It is a 'mission' instance.
For me, leave the game as is. When I enter my own mission instance, let there be an opportunity to explore. If I happen upon a building- in my mission instance- then that shouldn't be too hard to manage.....IMO.
Now- I have no idea how game engines work, so, forgive me if this one is not able to perform as well as others...I am completely unaware
Heck- I don't care to make this game instance to instance, but being able to enter and explore a couple of buildings would be nice.
It's the complete absense (sp?) of interiors that is self-defeating. If I could get 3-5 per game I'd be pleased.