Keeping Magic Magical
One of the big reasons that "magic" is always exploited heavily in any RPG setting is that anyone can be a mage. If the mage is obviously the super-class that can turn the laws of nature (and game balance) upside-down, why would you not want to be a mage? This is particularly true in the great crucible of RPG flaws, the MMORPG. At least in a pen and paper campaign, you can assign arbitrary penalties for characters who wish to use magery (i.e. GURPS’ "Magical Aptitude" and "Unusual Background" costs), and in a smaller scale CRPG you can toss out the assumption that most of the world is not made up of mages, and therefore it’s okay for the protagonist party to include a few. But in an MMORPG, everyone wants to be a mage, and there’s no way under the current models to say they can’t be. Asheron’s Call made a go of it with their research system and spell economy, but ignored the axiom that all people suck, and so before beta was out formulae were everywhere, nobody cared about the economy anymore, and they were back in the same boat.
In the MMORPG, it’s hard to justify a rarity of mages to your players. They all pay the same subscription fee, don’t they? Say that magic is only available to a tiny number of people who "have the gift," determined randomly. Now the guy with the account that doesn’t include someone "with the gift" is hosed. Either that or he just keeps rerolling and killing off characters until he winds up with a mage, and then you have the same situation as before, except now people are yelling at you on forums about your "stupid time-wasting system."
The common response to this problem is to simply assume that magic will be used by anyone who wants to be a mage, and try to keep it on par with the other class types available. This destroys the allure of "magic" and turns it into just another way of killing the bad guy. If magic is better for killing the bad guy than an arrow, then archers will just be mages instead. Magic becomes a commonplace activity, and the use of magic is just another tool, no different from an axe or a plow. To me, this is tragic.
A game that seeks to limit the number of players who choose to be mages often goes down another route that’s even stupider: the weakening of mages to the point of nonsurvivability. This is sort of akin to the D&D concept of a mage’s life: low level mages can be killed by having someone sneeze on them, and they can cast one pathetically weak spell before they go back to cowering behind the fighters. The tradeoff in D&D is that your mage may eventually become a god on earth if he lives long enough. This is not a consideration in an MMORPG, since (a) you can’t really die anyway, and (b) eventually everyone will get to high level. Therefore, the MMORPG version of this is to make the mage weaker at every stage. This leads to players dropping their subscriptions, and more importantly, nobody being a mage.
There is one solution that seems possible to me, a way to make mages relatively uncommon while not hamstringing them into comas. It involves requiring a quest of sorts in order to become a mage in the first place, i.e. you cannot start as a mage. I thought of this while drawing up design specs for a radically modified Sphere shard that I never finished, and as of yet I haven’t had a better idea, so here it is, in summary:
All characters start out roughly the same, with no magic. No magic is ever available to them with the possible exception of minor shamanistic magic (healing, far sight, maybe watering the plants). In order to become a "mage," a character has to undertake a very dngerous quest which he is expected to die on. If he manages to make it through the quest, he winds up at the place where you become a mage (secret mage academy, alternate dimension full of alien mages, underground genetics lab, radioactive meteorite, whatever). Assuming the character still wants to become a mage, he can… he loses a bunch of his other stats and such, maybe the ability to use certain kinds of gear, etc. etc., in effect trading in his moderately high-level character for a weak low-level mage.
Of course, this is not a solution in itself: magic still has to be balanced to some degree, you have to ensure that mages can’t immediately go from mewling newbie to god overnight, and ideally the quest to get mage status should be dynamic so a quick and easy solution can’t be spammed all over the web one day, ruining the intent of the exercise. However, if successfully implemented and maintained, this system might, for the first time, allow someone with a mage in an MMORPG feel like he has actually accomplished something, as opposed to hitting the right buttons at creation time.

I don’t see the above solution as being any different from asking someone to reroll characters over and over until a toon with innate magical aptitude comes along.
I think magic is impossible to implement in a CRPG and MMORPG and hope to maintain both the “magical” aspect of magic and any semblance of game balance. There are two components in something being “magical”. One, it has to be inordinately useful. Resurrecting someone from death is obviously useful. No wonder a lot of CRPG/MMORPG has it as part of their respective magic systems. Two, it has to be rare and usable by very few people. CPR and other medical treatments used to resuscitating patients are indistinguishable from resurrection in their final outcomes and objectives. But the technology is commonplace, so there is nothing magical about them.
In a CRPG/MMORPG, there is nothing preventing game designers from giving some players potentially unique and powerful abilities. But since people signing up for these games to be, well, special. It’s not feasible to then restrict such power to a few people. So you can pick unique or powerful, just not both. Hence no real magic. Ironically, doing magic in CRPG/MMORPG right is not possible, if the resulting game is to be commercially successful.
Hand waving, gestures, rituals, etc. these are just delivery mechanic. Just as a warrior swings his sword, a mage has to wave his hands. The end result is a 1d8+1 for a warrior with the sword and 1d8+1 for a mage throwing magic missile. It makes the game richer to have a decent back story around how the mage’s magic missile comes about, but the ability to throw magic missiles is itself not magical if hundreds of other fellows can do the same thing.
One partial solution about uniqueness and magic is to have different mages capable of producing different magical effects, hence the preservation of the uniqueness (or rarity) part of magic. Two problems arise here. One, with weird effects comes the complexity of game balance. Two, game engines themselves must be capable of doing different effects. There can only be so many meaningful varieties that can be added to a game. In a way, the old 2E D&D magic school specialization is a mechanic in a similar vein. AC had an interesting take on this initially with the use-based spell effectiveness. I didn’t play that one so I can’t really say how successful it has been.
“I don’t see the above solution as being any different from asking someone to reroll characters over and over until a toon with innate magical aptitude comes along.”
Um…dude. Rerolling is something you do after you spend the minimal amount of time neccessary to find out IF your character can be a mage.
The “solution above” is a quest that changes frequently to keep ahead of the wikis so that you have to discover it and complete it with little or no help from anyone else, and every character that becomes a mage is above as awe-inspiring as the dude who got the stupid Super Sword.
Only instead of raw power, its diverse abilities none of the hundreds of other sword-fighters in this low-magic setting can use. When you cast that Water-Walking spell now, people are actually wide eyed and going “Wow! He can walk on water!” Instead of it just being anothe buff they could’ve easily gotten if they practiced Alchemy or “rolled up a mage” at the start in that OTHER MMO.
The point is, they are a LITTLE different.