I'd heard of it before, because of various tabletop RPGs that were put out as tie-ins to various properties. When I got online mumblety-seven years ago, what got me WTF?ing was RPing without any real rules, or sometimes even no GMs guiding it, just doing it freeform. Which I guess grew out of MUSHing and MOOing.

I think the only sort of game I'd set up would be a freeform CFUD-type game, with a few boundaries set up so they wouldn't be rushing off and confronting Hollows or something without prior mod approval (although sending them into the real world occasionally might be fun), and a few defined locations - the squad's barracks, mess hall, and training ground, for some - and then letting them go.

I still like the idea of (not very visible) mods being canon characters, just to get Yachiru in there messing with their heads occasionally. XD