Early Days of Yore
There used to be a time when Wizards were even MORE powerful. Back in the early days of multiplayer text games, wizards were the content creators and programmers. They were the ones who created new rooms, new areas, new quests, new objects, new stories. They did all of this awesome stuff that NOBODY is allowed to do nowadays.
Wizard powers were awesome because they were meta-circular. Because from within the game you were changing the game itself. Unfortunately, since the world is filled with fascistic assholes, game designers want to control everything that's going on in a game. And also, since the world is filled with idiots, these same game designers don't understand the concept of meta-circularity.
The best part is that early Wizards made games more egalitarian because the structure of the game world was controlled by the players within the game world. And this is the exact opposite of what some people who want wizards to be "special" in their "heroic myth" want. In early games, the motto was "yes, you too can have absolute power". Nowadays, game designers don't want players to have even the illusion of it. Pathetic.
How It Would Work
There's very little administration that can't be folded back into the Wizard hierarchy.
For instance, an obvious way to judge how much XP creating a quest gives a Wizard is to count the number of players who seriously attempt it (enter the area, pass the middle waypoint, whatever) divided by how many players finish the objective of the quest. If zero players finish it then count that as zero XP. This provides an automatic means of judging the popularity and difficulty of quests created.
Since popularity matters for new quests, a Wizard will want to advertise them. So obviously they'll buy signs pointing the way from a Signmaker, bribe an NPC to tell players about the quest, buy ads in the world's newspaper, hire the Sculptor to make statues of the great general, and have a book written and put in the town library about the perilous dungeon. All of this draining money out of the economy (working against hyperinflation) which is good, and increasing the immersiveness of the game world, which is even better.
You could also add XP points if the quest area is far outside of town. This is important too in order to prevent all the new content from being clustered around the central city. Not that this would necessarily be a problem so long as Wizards can dig out tunnels underneath the city or float mountains above it, or simply build upwards. Or even just be very creative with the existing elements of the city by adding rooms here and there, building skyways. To say nothing of portals and extra-dimensional spaces.
You can also award XP points to a Wizard if they ERASE an area or quest leaving a prominent complaint sign for users to bitch. The more they bitch, the fewer points the wizard gains by it. If they don't bitch at all because the area was unpopular then you've obviously got a winner! If the Wizard actually starts losing net XP for deleting an area, they're then responsible for choosing to reverse their decision ... or not.
After all, maybe the area was ugly and they think it was worth losing 500 XP points to get rid of it. Or maybe the Wizard demolished an area in order to remodel it and the bitching of some users is more than made up for by those who like the new area. These are judgement calls and some people need to make them. Not everything can be universally popular after all.
So yes, this way Wizards could level up automatically, with very little oversight from administrators. And if game designers were smart, they'd make the entire Wizard hierarchy into an MLM scheme so that a high level wizard can sponsor prospective lower level wizards. If the latter's content sucks then the sponsor gets a penalty. If the latter's content rocks then the sponsor gets a residual of XP points every time the lower level wizard gains XP. And if game designers were very smart, they'd have a sophisticated scheme where you can have multiple sponsors (sharing residuals) or switch sponsors with some penalty.
You see, with the exception of the guys managing the servers and maybe the game engine itself, there is no good reason to have ANY out of game administrators in an MMORPG. Even banishing a k001d00d player to another server where they have a higher tolerance for that kind of crap is easily done IN-WORLD. After all, it's just a Wizard spell - Banishment! Proving that yes you really shouldn't meddle in the affairs of wizards.
Note my emphasis on IN-WORLD game mechanics. I learned that important lesson more than a decade ago from Lessons from LucasArts' Habitat. I also learned that protocols needed to distinguish objects from presentation (as HTML doesn't). It doesn't seem to me that game designers have taken either lesson to heart. Probably because they're retarded idiot.
Creating In Game Lore ... In GameConsider the town gossip mongers talking about heroic quests the PCs accomplished. I bet you never thought about how to do it in an automated way. Or how to palm off the responsibility to those who would be most likely to want to do it. The names of the quest and the objectives (kill bad guy, retrieve artifact) are all publicly available from the content creator, whether it's an out of game company programmer or an in-game Wizard. So THOSE parts can be fully automated and that's one generic mechanism down.
What can't be automated is what actually went down. But who better to tell you what happened than the guy who finished the quest in the first place? Have HIM tell the gossip mongers what he did. Fuck, have the gossip mongers ASK HIM what he did when he shows up in town next. And so what if the guy lies? The only thing that matters is that it be dramatic or exciting enough. And how better to achieve that than to have some kind of feedback so that each player asking the gossip monger “tell me more” gives the vanquisher of the quest a small number of XPs?
Gossip Monger: "Did you hear how X did Y at Z? [The first paragraph of text X wrote, with a minimum length]"
Gossip Monger then has two options ‘I already heard that story' and ‘Tell me more'.
Gossip Monger: "[Three more paragraphs of text X wrote]" then two buttons 'Tell me more' (or 'Thanks' if it's the end) and That Sucked.
Hell, if a player is a great writer then they could even have the action written out in multiple stages. And every stage nets them another 10 XPs each time a character listens.
And the best part of this is that THIS IS HOW THE REAL WORLD ACTUALLY WORKS. Because the real world doesn't have any “programmers” or “world designers” that create buildings and script people's actions. The real world has Gossip Monger NPCs and Historian NPCs.
For that matter, if a PC hires a Historian to write up his deeds and make them available in the Library, for a very hefty price. Or if he hires a Sculptor to make a statue of himself … then this could boost his Charisma stat which would feed his Negotiation skill. You could even have a Hero Worshiper NPC giving out a quest to heroes to write up their deeds and get sculptures made of themselves, with an XP reward for completing that quest. Again, work WITH economics!
This would be trivial to script. The challenge is making the Wizards powerful enough so they can CREATE this “hero worshiper quest”. Is fulfilling the hero worshiper quest something every hero should do? Or is it only for a very select few heroes? If the latter then yes the Wizards would have an economic incentive to create such quests. If the former then they won't have any economic incentive to do that. But they might do it just for colour. Oh wait, no they couldn't.
After all, you have to provide a huge disincentive to wizards to create easy quests where level 1 characters can acquire a million XPs. And that disincentive has to kick in once quests are solvable by >50% of players who attempt them. And the penalty WILL kick in if the quest provides enough XPs to attract level 20 characters to something that should be a level 1 quest. So the rewards of a quest have to be commensurate with the difficulty of the quest.
And if a Wizard makes such ridiculously easy and lucrative quests for his friends, thus violating the Sacred Ethos of the Order of Wizards, then he might have the magic drained out of him by a higher level Wizard. And his friends might be hunted down by a level-draining vampire assassin (from the Assassins Guild of course) on contract by the higher level Wizard.
Ideally, the disincentive would be that starting from 50% success rates on a quest, the XPs gained by the questors come straight out of the Wizard's own XP score, making it an automatic zero sum game. Unfortunately, this mechanism can be easily gamed so it only actually punishes mistakes by the Wizard and never malfeasance, which is why higher level supervision is still necessary lest Wizards just uplift their friends.
Still, it doesn't matter what you do. What matters is that it all be done using mechanics that don't break the illusion of the game world.