I would like to correct a simple misconception here: it is very possible for games to be policed, and viable to do so. The only reason it does not happen is because of a combination of laziness and outright greed since while the costs of doing so would not be prohibitive but they would be sizable and cut into profits.
Simply put, to police games what you need is a team of people who are always online on any server whose job it is to enforce the rules, and whom are able to take quick and decisive action. This differs from GMs as they exist now, because many GMs seem to take the attitude that they aren't there to be rules police so to speak, and they are generally operating with their hands more or less tied in taking any paticular action. It can take weeks or months to do something, and while they mention frequently that they will "investigate" something, mostly what they are talking about doing is waiting for someone to finally recode the game rather than deal with the actual problems going on within the game.
I look back at MUDs and how even some of the most PVP centric ones kept order. This was typically done by having a bunch of people online at any given time whose job it was to run around and enforce the rules such as it was. These guys would hide using dev invisibility specifically waiting for people to break rules, monitor private chats of suspected private players and "guilds" (such as they were), and similar things. Then when they caught people there were punishments meted out ranging from the removal of items, to the editing of statistics, to the suspension or banning of players from the game in general.
Among other things I feel one of the problems is that MMORPGs in paticular limit their own options in policing the community by pretty much only working with suspension and bans. Not only does this prevent middle ground punishments and "slaps on the wrist" (so to speak) but also means that in many cases your either forced to ban someone for an exploit (as happened with some guilds even in WoW) or deal with a suspension and eventual return of characters to play who still have the benefits (loot, gold, stats) accrued through whatever was done.
My own experience as a game enforcer on a MUD probably won't work as much of an example since I was in an "enforced RP" game where everyone was supposed to be In Character all the time. I had a character who could disguise themself, turn invisible, and do all kinds of things who had "admin" type powers and was assigned to do a combination of IC and OOC policing through killing characters, removing items, and doing a variety of differant tasks. Both as a result of my own investigation, and being assigned to deal with problem situations by other admins who were concerned, but spent their time coding and/or building the MUD and didn't want to have to worry about whether some of the PvP violence was being justified by RP, if someone found an exploit, or if we just had players being bullies.
However I have long felt that if you had say 10-20 people running around on each server who seemed just like normal characters, but were admins, and did nothing but look for people breaking rules, spied on conversations, and did other things before taking action, you would see some massive improvement despite the complaints. Not to mention the fact that when I look at some of the abuses in PVP over a period of time and the benefits that were able to accure due to things like the "Tauren Mount Exploit" back in the day, I long felt that being able to strip someone of honor, BG tokens, or whatever would have been more appropriate than say a 48 hour suspension which in the end doesn't remove the rewards they accrued. Ditto for situations where people exploited ways of making money or exps that were known. Docking someone 10 levels and force-unequipping all their gear would have been just annoying enough to discourage the behavior. Got a corpse camping problem (in whatever game?) have a GM that looks like a newbie wander by, get killed, wait for them to camp, and then insta-kill/suspend the group. It discourages bullying if there is a chance that guy your about to corpse camp is really a game cop.
Of course as I said, this would involve paying a bunch of extra people doing admin duties. It would also involve some initial risk of people actually leaving the game (albiet people that were harming the community, and which might encourage more players indirectly) but in the end I feel that is a non-factor both based on MUD experience, and the simple fact that MMORPG players whine about everything but rarely does anyone leave. All it will do is cut down on exploits and such by increasing the risks.
The concept DOES need some work of course, but the bottom line is that the whole issue of "exploits" exists in part because there is nobody to police them and few tools to o it with that matter. This is also the issue with general bad behavior in the game. I mean nowadays you contact a GM in any game, and if your lucky they will get a hold of you in "only" a couple of hours. By that time whatever you complained about is over and done with.
By the same token in non-MMORPG games, such as ones with people "boosting" achievements with benefits, all you need is some undercover dudes who operate a bit like "The Pro" whose job it is to deal with such things. Right now companies like Microsoft are willing to totally lock out someone's X-box, but for whatever reason are squeamish about having a GM edit accounts. All you really need to do is pay some guys to sit around on game forums looking for "achievement boosters" setting up meets, crash them, and then say wipe the
achievements of those players for that game. Heck they could also just sit around in the gaming community waiting to see people talk about it/admit it/ whatever, or even set up "honey traps" where they offer to get it going. Again, no need to ban and lock out someone's $300 console, just load up someone's profile on a computer with the right access and start removing achievements. This kind of thing DOES get touchy, but I could even see it going so far as basically wiping ALL multiplayer achievements from someone as a step before you actually cost them real money by locking their system out.
All rambling aside, the big obstacle to this kind of thing is of course companies not being willing to cut into their profits to hire people to do this kind of thing.
Besides which, when I look at the whole situation between "ItzLupo" and "The Pro" I can't help but wonder if the same affect could have been achieved if say Itzlupo had half of his quarter of a million gamer score erased (with random achievements being nuked after the multiplayer ones), which would have been a blow to his pride (since I'm guessing he takes it seriously) but wouldn't have actually cost him or his parents a few hundred dollars in hardware. Ask yourself seriously that if you were achievement hunting if you would not be on your best behavior if someone (who might not even be a player listed in your game) could do something like this to your account punitively if you were acting like a twit? How many more people would go to these services if you suddenly saw the "foul mouthed 12 year old" stereotype greatly reduced due to actual policing. Of couse ion a servie of that size I imagine it would take even more people than WoW.