If I understand correctly what you are proposing, this is just creating new instances of continents on the fly, as needed based on population. This is pretty much standard MMO instancing. The first to do this that I recall was Anarchy Online. EQ2 does it exactly as you describe.
For me it ruins immersion. What does it mean when your faction controls the majority of Indar1 while your getting your arses kicked on Indar2? You can't truly have a sense of ownership or accomplishment, because you can't rightly say you are winning.
Squading with friends and outfit members becomes troublesome. Not to mention these continents are designed to have 2,000 players fighting over them. It's going to play odd when Indar1 fills up, and then Indar2 has only 15 players in it.
For me, the most immersive MMOs have been the ones with no instancing at all.
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