Jonathan Steinhauer's MMO ColumnThe Death of Story, Part III: Character StoriesJonathan Steinhauer's MMO Column - RSS 2.0
Concepts like backstory don't only lie in the realm of role-players (though I suspect they'd like them). Depending on whether or not a character was born in a peasant village, to a merchant family, or in a warrior caste should have an impact on how they are treated by various NPC factions.
One of the popular aspects of MMOs is the ability to choose various advancements as you grow that distinguish you from other players. This happens through Trait, Talent, and Career Mastery as well as equipment choices and so on. Yet a level one character, who is presumably a grown adult, has nothing to distinguish him or herself from other characters beyond base class. To get a good character story going, players should have different cultural, caste, occupational, and family backgrounds that influence not only their starting stats, but how they interact with the various factions in the world.
Another method to differentiate starting characters is the giving of various advantages and/or disadvantages in a GURPS-like style. It might even work best if such traits were randomly assigned instead of selected by the player. Otherwise, players would soon pick out a particular set that best meshes with their class and in a few short weeks, all of the rogues would be identical to each other again. For randomization to work the advantages would have to be minor, much like the racial bonuses given in WoW and there should be a sufficiently large number of possibilities that players won't just "reroll" until they get the ones they want. If they aren't randomly assigned, however, it would make sense for there to be a small laundry list of choices, some of which are available only to certain castes and occupations, and also the ability to select a disadvantage or two to increase the number of advantage selections.
One RP-only method that LOTRO has is the ability for players to write character backgrounds that others can read if they so choose. While this doesn't add anything to the game beyond an avenue for players to display their own creativity, it is a step in the right direction. Some players appear to be less profound than others, though. I recall seeing one player who simply wrote "He is tall."
In any case, the key point is that characters should start the game unique. Otherwise they might as well be a bunch of FPS clones. To put it another way, consider LOTRO's PvP system. Players fighting for Angmar make pregenerated end-game characters. They skip all of the leveling, questing, and building of arms and armor that normal player characters undergo. But in a life story sense, are they really any different? A pregenerated L50 Uruk Blackarrow has as much game-developed background as an Elven Champion that has leveled from one to fifty. That is to say, none.
The leveling stage of a character's life has seen a lot more focus on how to give them their own stories. This is in large part due to recognition by MMOs that players do, in fact, want to achieve individuality and renown. Devs shirk at the creation stage, but do allow some measure of growing choice once the game begins. As was mentioned above, this is commonly achieved through advancement trees: Talents, Traits, Career Mastery and the like. Another method games have begun using are techniques that allow players to catalogue and/or display various accomplishments. LOTRO uses the deed and title systems, while WAR has added bragging rights and its intensive Tome of Knowledge. WoW recently jumped on this bandwagon by adding its achievement system which has much of the same perks as the newer games.