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This is where dead reckoning comes into play. Without DR, this routine will lead to very noticible (and unplayable) warping.
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Unless you have to money to host a server on each continent, this is not a vible solution. If you have two servers in the same city (or even country), their latencies will be off by at most ms and thus you dont' gain anything here.
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Here is an example problem here: Player A and Player B want to move to Spot A. Who gets to go there? What if Player C gets both updates? What does he see?

Here is another example problem: Suppose you have ten players and one server. One player moves and has to update the other 9 players as well as the server. However the server finds tht the movement was illegal and sends an update to all 10 players rejecting the move. However before you get the server update, you keep moving and giving the other 9 players updates. In short, one bad move could result in 10's or 100's of unnecessary updates which could lead to a flooding failure on the part of the client or server.

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I'm not talking about dead reckoning here,I'm saying that it needs only a simple move forward until the update comes. After the regular update (if the pos is offsetted) the ent will float(same speed as movement speed) to the new possition smoothly(with dead reckoning it could even be curved,for further smoothing). For a FPS it'll look not only slow but also wrong (I mean moving in another direction while facing the opposite for example) but for RPG its fine,imho
About the servers...you wont gain much,but even 50ms is enough if you reduce it below 100ms,dont you agree? Btw , lets first create the MMOs then we'll think about the money for the servers
As for the collision...player A sends an input to player B and C...player B sends also input to player A and player C...player A receives input and collides localy ents A and B , player B receives input at the same time player A received player Bs input,and collides too localy ents A and B...player C receives the same inputs,possibly at diffrent times,and collides with just a little offset ent A and ent B because he got the inputs at diffrent times,and than they collide for 200ms , wich is just a little movement , until the regular update comes.
How does that sound? And for the second problem ... if you move your clients localy it'll be a problem , but if you move them localy only until a regular update comes , the server will correct the possition (that the ent collided with another ent) and move that same ent on the clients a little back,where it actualy collided. It wont look good,but why do you suppose WoW doesnt have player-player collision only player-env? It's interesting to discuss this , but we should try (each one of us) to make some solutions to this problem,so we could all benefit from it (and it could possibly take all of us one step further in the process of making MMOs with 3DGS,wich I would love to see done,even if its by a person that I dont like just the idea having a MMO made with it is great...)