It sounds like this game should either go for the server sizes now with lots of NPCs, so that players can lead a band of bandits or be a lord, but all of their shitty peasants are NPCs, or they really have to boost server size to at least 400. I mean, that's a nutso number but if you think that you want to have multiple factions, with nobles, soldiers, peasants and then also merchants and bandits in between, you'd need that many.
It would be amazing and easily sounds like a game I would happily sink hours into if they could achieve that, but without it sounds like a shitty survival sim where you become lord of an empty castle.
They could maybe try some form of instances? That sounds weird, but what I'm think is the sort of thing were when you are walking into the "Party Plains" you enter an instance and see the other 10 players there, but then you leave and go into the "Carton Castle" and join the next instance.