Well you have one of the main problem of quests right there. Since the western market is adversed to a lot of grinding quests have been used to mask it and give purpose to the whole thing. The issue is then that you have to make a huge number of quests to stretch out the time it takes a player to do X thing (say get to max level) and then obviously those quests become monotonous, theres only so much you can do with them using the hot-key style game-play design most MMORPGs follow. But is the solution to remove quests all together? I personally don't think so, as sunandshadow said a good quest is like a good book if you find one you can really get into it. But there aren't many good quests out there and thats probably more down to not knowing exactly how to design them effectively for an MMORPG. I could write an essay on the issues i have with quests in current generation games but I'll spare you that.
As for the story in general theres a lot of techniques being proposed by people in the industry as too how to improve the story telling methods of a game (check out "writing for mmos: your doing it wrong" if you haven't already). The style of storytelling your advocating is something similar to Mortal Online and from my short experience of playing the game one of its major failing was that is provided no general history to the world beyond what was written in the intro section. That to me is the worst way of telling a player the story since your not using all the resources available to you.
You may love that style of game but in all honesty other may not. My point about WoW being popular is that style of storytelling must be appealing, or at least not objectionable, to a huge section of MMORPG players. The projects goal, and sorry for not explaining this sooner, is to not only see how/if current storytelling techniques withing MMORPGs can be improved but also what effect they have on different kinds of players. By that i mean whats (if indeed there is) the best way to tell a story to say a PvE player and get them engaged in the world compared to a PvP player.
I guess the first part brings up; Why do we have to have heavy grinds in an MMORPG?
I myself don't want quests removed. I just want them changed to be of more meaning. If people want to have tasks in a game, like DAoC added at starting hubs, then by all means. Have people offer repetitive tasks, but just don't call them Quests. A quest used to have more meaning to it's name. Easiest example: Lord of the Rings. Frodo was on a quest to destroy the one ring. He could have tried to do it all alone, but he may have failed, and more often than not having some help along the way helped ensure victory.
What they have done is enslaved writers to crank out quest after quest to add to the marketing campaign; "Over 1,000 new quests!" How does that actually make a game better?
There have been quests in games, even WoW, that I have read, have enjoyed, but it was only for a brief moment. I suppose the ease of questing has made it so they are less attractive to read than previous. There is a map for everything. Things sparkle. Just... too easy?
I have never played Mortal Online because I am disenfranchised by people that have claimed their independent awesome sandbox game had this this and this and they never delivered. Darkfall really pooped in them waters. I do believe worlds need history, no denying that, but as you have been saying... is there a better way to get it across? I hope so. Maybe less quests, but more powerful stories, would be a start?
I am of a mind where the individuals need to feel as though they matter. The best example I have seen of this was in DAoC. There were often calls from realm mates that help was needed and if you helped, you felt as though you were contributing. Even as simple as "Archer ganking in Mt. Collory." I would go out, as a Ranger, and follow players around. I would check common areas. I would do what I had to do to try and catch this archer off guard. Back when I was first starting the game, on my Ranger, there was a Red Con Hunter doing it, most likely a level 50 at the time. At that stage of the game design he was able to single shot kill people often enough to draw some ire, granted lower level players may have been better off hunting some where safer, but I would get the player engaged and eventually I was able to take him out. This gave me meaning. I felt like I did something good. Keep fights were even more intense. How often did I soften up the enemy army upon rushing the keep lord so my side could stand a fighting chance? It was awesome.
P.S. If I haven't said it in a post you have read before I am a HUGE proponent of bringing back the PVE/RVR split areas for a game design. Lessening the power curve of characters, lessening the power of gear, and making it more of a casual experience. Almost giving it an Counter-Strike feel. You get on the server, do some work to get yourself some basic gear, then you can start using slightly better gear to be slightly more deadly. Not an FPS by any means, just that I want players straight from the start to be able to at least do SOME damage to maxed out characters. 10 new players should almost always, with proper tactics, be able to kill one maxed out player. Defeating those 10 should make you feel giddy inside. This game is more than just RVR though as PVE side would have more options than typical MMORPGs of late, but not necessarily a "sandbox". Really pushing the thought of PVE city building where NPCs can raid them. Cut down on stagnant never changing NPC locations in place of player driven content.