Why not make the whole of the areas outside the city walls and not in line of sight of them, PvP zones. Then make the NPC in those zones be the only ones that drop loot, so someone farming a Tefu/bandit spawn area has as much likely a chance to get a dagger in the back as someone swinging a pick. Make the transision tunnels between zones safety sites, so slow connected players won't get nicked by someone camped at the load spot.
PC bandits should start gaining negative faction points towards cities, eventually not being able to enter them or spawn from the DT in them, making for the addition of new spawn points in the PvP zones for them. PC bandits would have to kill all witnesses in order not to get the negative faction points. So just one witness able to reach a city will give the PC bandit the points and with more witnesses additonal points are added.
Have guild/clans share in the facton points that sole PCs gain, so bandit PCs lower the reputaion of everyone associated with them, as in a guild/clan. So guild/clan interactions have to be estabilshed in order to get stolen loot to market. ie, guild A loots, Guild B sells loot. Till which time peaceful interactions. like trading, can rube off faction points. ie someone witnesses outside of both guilds that guild A and B interact with out violence. But this is getting too complicated.
Basically like RL, there should be punishments and rewards. Since death is not an issue here, something towards the ends of incarseration is best in affect. Now since actually putting PCs in a 9X9 cell for any length of time is a bit extreme for a game, ostrasizing them to the countyside(pvp zones) is the next best alternative. Now being that the City is the bottle neck between the current 4 proposed PvP zones, two on either side, ie CatTown -zone1- zone2- City -zone3-zone4- BD, makes for a bad proposal for those ostrasized, as they will be confined to one side or the other with no possibility of skirting the city.
Something else that needs to be fixed should be the monster tracking, right now PCs can WALK circles around an NPC, casting spells or hitting the creature with with hit/flee tactices, while the NPC just runs to the position the PC was last in 5 sec ago. The NPC should be given quicker reaction times to compensate the players ability to make their PC move so. The NPC direction should change the split second the PC changes his, the NPC should also match the speed of the PC, as most NPC aren't wearing armor or carrying a full inventory, This will make the PvP zones much more dangerous for all and a greater punishment for those ostrasized there. No matter who is does the killing, PC or NPC, those killed should drop their inventory, Humanoid NPCs should pick up dropped loot and run away from the area, those lucky to find that NPC later on will get a bigger reward. Likewise, some of the monster type NPCs should eat some of the types of loot, as if they are the corpse that was left behind, and again high tail it out of the area.
Now these additions to the original posted idea might seem harsh to an extreme but viewed as the intentions to allow PvP/PK zones, the nature of them balances the action of PK, where being ostrasized to those zones befits the socially harmful aspects towards an MMORPG that PK brings. PK should be an option but it should be a dead end road with many perils so as to sway the majority from the act. Much like in RL, Murder = the probability to spend the rest of your life on death row, with the exception of OJ and the few Nazis that made it to Argentina. "Buenos dias Mein fuhrer ... Goodentag herr pepito!" ... "If the glove doesn't fit, you must acquit!"
