Of course it's possible... You'd have to really optimize your code to make it as efficient as possible, but that just depends on the programmer... For instance don't use like 20 BroadcastMessage's per a player... Haha. But you get the point.
To further this.
You can do "worlds" so that, yes, everyone is together, but have like, Block 1-10 is 1 "world" so you can only actively meet/see these people in here, not like, across the world... You know?
But again, it really is how you do it as a designer...
Good luck =).
Edit:
Sorry, I've been in class for a lil today.
But okay, imagine for me, their are these people:
Bob, Sam, Jim, Phill, Joe, Jack.
Okay, so, with these, you have let's say 2 "districts" or worlds if you may... Now, in these worlds...
You subdivide them. So, You have World A and World B.
Now, after the subdivide, you'd have... Let's do a city. Block 1, Block 2, Block 3, Block 4.
Now, let's shorten this to World:Block. So, A1, A2, A3, A4, B1, B2, B3, B4.
Now, in these, you have the people.
A1= Bob and Sam.
A2 is Jim.
A3 None.
A4 Phill.
B1 and B2 none.
B3 Joe and Jack.
B4 none.
Now, this means, Bob and Sam can SEE and INTERACT with each other...
Jim and Phill can communicate with one another, and also Bob and Sam, but can't directly interact with them... Maybe render them, but until they step foot in to the other Block, you can then touch them...
Same goes with world B...
Think of like, GTA. GTA doesn't calculate all the collisions, actions, events etc. of ALL people, it does it in that place you're in currently... Hence the loading times... This goes for WoW, and many of the open sandbox (?) games...
Does this make sense now?
EDIT 2
Alright, so, think of it like this... I'm in a store... You're accross the street in the movie theator, but were on the same planet. So, we can talk to each other, but we can't see each other or interact... Right? Like, we have cell phones, so we can communicate... So why worry about what you're doing? All I'd need is to be able to talk to you, and that's it... I don't need to know you're spray painting in the bathroom, that doesn't concern me.. All that concerns me, is you're not in the store...
Now, we move in to the street (Another block, the store was a block, so was the movie theator), so now we can see each other, because it does matter... If you're killing the 20 people around us, I need to see that you're doing that... So we can talk to each other, and interact...
Meanwhile, Jimmy over there in World 2, we don't talk to them, we don't do ANYTHING with him, we don't need to know anything about him... Maybe that he's online and in world 2, but ignore him besides that... If he's nuking world two, we don't care, it's what him and whoever is over there...
Now we have Bobby over here in World 1, but he's accross the city by the farm... Now, we (Were on the street, remember?), don't need to know his location or anything about him until he's actually in our Block...
If this doesn't make sense, than I say think about it, because I don't know how else to explain haha.