I'd start a lot of things from scratch, not to make this game less Ultima, but to restore the vision of Ultima that we've slowly but surely strayed from.
I'd demolish all the NPC towns and make 8 new towns in their place and reshape the land as much as possible without affecting spots with existing player housing. The new towns will be huge (britain/trinsic size), but there will be no buildings within the city limits, just the roads, walls and a basic city hall building. Instead, players can build houses in the empty spots (limit 1 house per account still applies). Placing a house makes you a citizen of the town, but forces you to pay tax to the city coffers. If tax goes unpaid for too long, you will lose your house (all stuff goes in global moving crate and will re-appear in next house you place).
Each town has a limited capacity for shops/inns/stables/etc. Citizens with the relevant GM+ skills can bid on licences that turns your house into one of these building types for three months. You'll have NPC shopkeepers to assist you and far-reaching control over the goods and services your shop offers. You can buy generic resources from the city (if trade official made them available, see below) and resell them automatically in your stores for a profit. Any crafted goods can also be put up for sale. Owning a shop gives your account access to unique, limited use crafting recipes (you can craft X amount of these artifacts per week) that are not obtainable elsewhere and carry the name of your shop as a kind of maker's mark.
Towns hold elections and choose their own player-run government, including positions such as governor, treasurer, trade official, captain of the guard, etc. The player government determines taxes and expenses. Funds in the city coffers can be used for various purposes - procuring trade contracts to supply your city stores, buying decorations that can be placed within in the town limits, upgrading the city hall or city walls, hiring NPC guards, purchasing upgardes such as increased storage capacity or better trading opportunities, etc.
There will be epic multiplayer quests that affect the entire city, these fit generic themes (so they're easier to program) but have a little bit of variation each time. Themes are NPC invasions (similar setup to invasion of Britain, with the progressive NPC checkpoints that can be beaten back or eventually flood into the city), resource gathering missions (gather 500k ash wood), crafting missions (craft 20k broadswords and 10k suits of platemail armor), and so on. All citizens can participate in these quests and score contribution points each time they help the city out. The city government can use city funds to grant unique rewards to the top participants. Succesfully completing these quests grants opportunities to the city (more trade options, more shop licences, rights to upgrade city hall and walls), while failure results in negative effects to the city or even destruction of walls and decorations if the city is really being neglected.
From time to time, cities can declare war on each other, this allows citizens of the respective towns to turn on a PVP flag on their character(s) which enables them to attack PVP-flagged characters of the opposing towns. Players can attempt to raid the opposing towns by breaching the walls and occupying the city hall for a set amount of time. This allows each player to loot a sealed box of booty from the city hall (gold and trade goods) which they can deliver to their own town hall. Every once in a while, a caravan of NPC pack animals and guards will depart from the victorious town to the conquered town. Players must escort this caravan. If the caravan makes it to the defeated city hall, it will remove gold and trade goods from the city store. For each pack animal that makes it back to the victor's city, gold and resources is added to the town's treasury. Attackers can also set player's shops on fire for a small amount of generic loot, which disables the shop until the invaders have been repelled and the fires have been put out.
There you go. Community-driven gameplay, crafting made worthwhile, the good parts of Faction War revised, new game mechanics for everyone.