I still maintain that the biggest design failure in World of Warcraft is the two-faction system. It leads to so many problems:
The more systems you tie into factions, the harder the choice (and the more decision paralysis) you put on a player. They now either have to make the decision blindly or put up a large amount of up-front research. If the factions tie into player power and aesthetic identity, now you force players to either be strong but look unappealing (to them), or be weak but look appealing. If factions tie into who you're able to fight in PvP, then now you're forced to ally with players who you may like less than anyone on the other faction.
Much better is to have player's main allegiance be to player-created guilds. Cap guild sizes at relatively small numbers (say, ~100), and make everyone not in your guild potentially hostile. Prevent griefing via the sorts of karma systems used in albion online, and preserve the new player experience by disabling non-consensual PvP in most zones. Check out EvE Online's implementation of zone security for a tried-and-true way to achieve this.