Personally I think most if not all MMOs, heck even games in general are reliant mostly or "crutched" mostly by external motivators, I guess barring FPS, where skill and the justification of that skill would be motivation enough to keep playing; those games are, at least to me, the most "fun."
WoW was kinda fun because PvP and the possibility of being ganked would call upon that skill.
So I guess my question(s) to Kachi would be, wouldn't calling on skill be vital to enjoyment and wouldn't (as I think you suggest) intrinsic motivation be best? And if that's the case, then it's no wonder (given my example) in part why a game like WoW is popular and why FFXIV has a lot to learn?
Excellent questions, but you've really opened a can of worms there... this turned out to be quite an essay. At least this is an appropriate thread for it.
Particularly in video games, there are three broader categories of skills: physical, mental, and social. Nearly all games have notable elements of at least the first two, but some are more oriented towards one than another. Physically-oriented games focus on dexterity, like FPS, racing, fighting and music games typically do. Mentally-oriented games focus on strategies, analytical thinking etc., like strategy RPGs and puzzle games. You see some excellent examples of physically-oriented games that require a great level of physical and mental ability and vice versa, Super Smash Bros. and the Rock Band/Guitar Heroes games are immediate examples. I'm sure some FPS are the same. Finally you have socially-oriented games, and many MMOs fall into this class. MMOs aren't known for being exceptionally challenging in terms of physical or mental skills... the challenges are more related to teamwork, finding peers, following directions, leading, competition, etc. This is largely what fueled the measure of success that FFXI had.
To give a brief answer to a question for once in my life, "Yes. Skill is very important to enjoyment." There is absolutely no question from a psychological standpoint that a part of what makes something intrinsically motivating, and fun, is that there is an appropriate level of challenge to it. Note that games like SSB and RB/GH provide good examples of "scaffolding" which allows difficulty to be adjusted to the player's ability, allowing them to progress towards higher levels of play as they improve their skills, rather than throwing them in the deep end. This also ties in with what we call an "optimal level of arousal," which differs both between and within people. In other words, sometimes leisure is about pushing yourself, and other times it's about relaxing.
Part of this explains why some people, unfathomably to others, enjoy FFXIV. They may find aspects of the game challenging which the rest of us find to be far too easy, particularly if it's their first MMO, and others may find that it's a source of relaxation from an otherwise hectic life, where the rest of us find it to be boring and not stimulating enough. So not so fast with the WoW example-- stimulation doesn't always mean skill or enjoyment. For example, both avoiding getting ganked in WoW as well as camping an NM in FFXI require high alertness. Alertness is a measure of mental focus and energy expenditure, and can easily be a stressful, unenjoyable experience. Think of it like holding something heavy over your head... challenging, but also tiring and mundane. It can still be a part
of a fun activity though.
To answer your other question, yes, intrinsic motivations are "best." In fact, they're not only best... once it stops being intrinsically motivated, by definition it stops being leisure. Leisure is no longer defined (in the professional field) by 'free time' but by the motivation. That said, motivations aren't diametrically opposed... people have multiple motivations for different things or the same thing. So a game like FFXI does (or did) rely heavily on extrinsic rewards to motivate players, but there were also intrinsically motivating social challenges. Extrinsic rewards can be great supplements to intrinsic motivations (but can also damage it in some cases, particularly in obviously coercive situations... think of how some players feel when all of their old extrinsic rewards are replaced with new ones). If nothing else, they can keep the player playing between the fun parts.
Skill and challenge aren't the only factors that influence intrinsic motivation though. Freedom is probably one of the main ones, and in games this is represented by features like adventure/exploration and character customization. Variety and novelty are also important, because we eventually experience hedonic adaptation (things that are really cool at first get boring as we become used to them). One area that I still don't fully understand is the psychology behind the enjoyment of a story, but some of this certainly relates to novelty and variety. Sometimes "fantasy" is cited as a source of intrinsic motivation, and I believe that it is-- it definitely helps explain what motivates people to watch movies, read books, and... play Final Fantasy. It's a complicated phenomenon that could have to do with anything from the feelings of competence we experience when we learn about ourselves and our world through story-telling, to relating to story characters and feeling emotional attachments to them, to plain escapism and the freedom that imagination allows us. All I can say is that I'm working on why, but story is definitely a plus for the FF franchise.
So to bring things full circle, I'd like to use the RPG genre as an example. RPGs can be hard to define as they lack a clear defining element... often they're thought of as progression-based games, though historically they've also been heavily storied, having adventure and world-exploration elements, and reliant on strategic gameplay/combat. A good RPG can play off of these latter qualities to foster intrinsic motivation (where strategy= skill, adventure= freedom, and story= mystery meat). Progression itself is merely an extrinsic motivation unless the act of progressing is fun itself, and for an RPG that means challenge and exploration. Some people hated XII because they found the automatable gameplay boring and the story lacking, where others hated the linear nature of XIII and the effectiveness of the auto-attack feature, which also made the combat boring.
Yikes, so that's about the most comprehensive breakdown of game psychology that I've ever offered. I hope it was informative if not interesting, and further questions are welcome.
A disclaimer, of sorts: these are not the types of things you learn explicitly in the course of any legitimate program. Technically speaking, these are hypotheses. I don't have any scholarly articles that conducted research on "what makes video games fun" and there won't be academic textbooks on game design theories that can report on research that doesn't exist. I have to draw inferences from experiments about kids coloring with markers and such to apply them to game design theories. Most of the literature revolves around sports and other leisure activities, some of which is professional research, and some is just market research. My point is that this isn't really an explicit field of study in academia, so while I'm about as close to an authority as you can get, I guess, realize that this is coming from my expertise, which in the scheme of things doesn't carry a lot of clout.