Sounds like a pretty totalitarian system, right? AIt is a good point. Go read the whole thing, which traces through the concrete example of a small store owner.governmentof sorts (Linden Labs) controlling most every aspect of life for its virtual residents. Now, imagine if Second Life breaks out of the fringes and into the true mainstream. As in, imagine if everyone you knew spent at least 30-60 minutes a day in Second Life. Now, imagine one company being the gatekeeper to all activities in this virtual world. Even more so, imagine one company being in control what is even virtually possible in this world. What would happen, or could happen, here?
I expect that people will have an increasing online life, and so issues like this will become important. Ideally, places like Second Life that form a platform for other interactions should be subject to a democratic system much like that of a traditional government in physical space.
Similar issues apply for companies that already define parts of our computing infrastructure. People who use a document format should insist it be open and not subject to overly strong influence by one company, as Massachusetts has with its Open Document Initiative.
It gets more chilling, though. In addition to it being easy to lose democracy in such a setting, there is a missing protection that is absent or at least different in virtual worlds: practical limitations on enforcement. In physical space, if the government sets a tax of 75% on all sales, most people simply would not pay it. They would simply stop reporting their sales. If the police force is enlarged to counteract this effect, then it still will not work, because the police will themselves become corrupt.
Likewise for restrictions on many other aspects of human life. Imagine your favorite borderline legal issue, and imagine the law were turned radically against the way you would wish. Would the enforcement work, without an enormous level of police? Would it work, with an enormous level of police? In many cases the answer is no.
Some of these limits go away in a virtual world. For the people who define a system of currency and a definition of what it means to "own" things, it is utterly trivial to additionally levy taxes on all transactions. For the people who define the geometry and physics of a 3-D world, it is trivial to code a restriction that person X may not go under the same roof as person Y. Thus in many ways, the possible level of enforcement is much sterner than in the physical world.
I do not have a strong idea of how to best to respond to these possibilities. One suggestion, though, is to pay a lot of attention to the software architecture. For example, it is much safer if the mini-worlds within the virtual world are run on different people's machines, because then a lot of the power over what happens in the mini-world shifts to the mini-world's owner. There are no simple answers, though, that I see. This concentration of power is simply something to be aware of and to keep under constant vigilance.