After a great discussion with Armies, I ended up going through mental checklist of innovation in recent high profile, big budget MMOs (as I scootered home from work...likely not the best time to be day dreaming!). You can read Armies' comments below this post.
I originally posited that most big budget MMOs are not very innovative because publishers believe there isn't much market for them and, given how few innovative MMOs have done well, that they may be right. However, Armies points out that when it comes to innovative big budget MMOs, we have a bit of a chicken and egg problem. Most of them tanked, but most of them also had serious issues at launch that had nothing to do with whether they were innovative.
After giving it some thought, I think he is essentially correct. We haven't really had enough good test cases to know what kind of market there is for a big budget MMO that strays from the Diku MUD formula of Everquest. And that's a damn shame.
WoW, and more recently LoTRO and WAR hardly innovated at all, and all did fairly well. Well OK really insanely well in the case of WoW. However, two of them also lacked major issues at launch to hold them back. The exception, WoW, was unplayable for many users around the first month of launch. They didn't give out that free month of sub time for giggles.
So WoW, at least, did have a major issue at launch, didn't innovate much, and reset the bar for what can be achieved (in terms of subs) by an MMO. That does sort of support my "gamers are mindless sheep and publishers are right to not innovate" theory. Counter to that, the biggest issue WoW had at launch was that too many folks wanted to play. In terms of the basic design and mechanics.... once you were actually playing and lag free the game was nearly flawless (which, as Armies points out, could in itself be seen as an innovation for the time). So make of that example what you will.
Lets look at some of the counter examples. MxO, AoC, DDO, and TR strayed from the core Diku MuD design (at least in terms of the combat system), and all tanked. But all also had serious issues at launch. TR ran like ass on average gaming PCs of the day. Even the developers admitted a few months after launch that the bulk of users were using the lowest settings. AoC and MxO had too many issues to even list. Even DDO, while not particularly broken at launch, had a core design that to many of us looked a bit insane on paper (it turns out we were right).
Launch CoH had a lot of innovations in terms of character design (the mix and match power sets design remains a personal favorite among MMOs), but few in terms of actual gameplay. Unless you can call stripping an MMO down mostly to combat an innovation. Regardless, it had a smooth launch and did pretty well. Subsequent updates have made it one of the more innovative MMOs on the market. Day jobs, user generated content, oddball crafting system that lets you create temporary powers and costume pieces. However, these don't seem to be affecting subs much. It's been hanging in the "highly successful but not a WoW killer" territory with FFXI, EQ II, LOTRO, and WAR (and now EVE) pretty much since launch.
EVE had a fairly smooth launch (or so I understand, I wasn't there), and was highly innovative. Even daunting. However it also started off as a niche product. After several years it has slowly worked it's way up to the same territory as other moderately successful sub based MMOs. It now seems to be among the top five sub based MMOs in the western market. Very successful for something that started out as a niche product for the ultra hardcore. But perhaps not too enlightening about the overall market.
So where does that leave us? Is there a 200-500K market for a polished innovative MMO? Who can say. However, after the failure of so many high profile MMOs that strayed from the EQ/ WoW formula, I very much doubt that we are going to see a truly innovative MMO from a major publisher in the next few years. Maybe Bioware, or even Blizzard, is about to shock me. However, I have my doubts.