Immersion is a loaded word with different meanings for different folks but it's one I'll sit down and discuss with you.
What? I can't sit? That's not a good sign. A sitting avatar often means, in roleplayese, "Sit down and talk to me." Nonroleplayers tend to be rushing around everywhere, places to go and things to kill, but roleplayers love a cozy setting where they can plop their bums down and just do their thing. Not being able to sit immediately reminds a player his avatar is just a character in a game and, when that happens, poof goes immersion. It's the canary in the coal mine - either a developer gets this off the bat or he probably is missing alot of other stuff roleplayers look for.
Immersive elements include setting, control, dynamism and simulation.
Settings should be detailed, ridiculously detailed, but should follow plausible and recogniseable forms and translate fairly well into the actual game systems. The more detail a setting has, even it it seems silly to some, the more raw material roleplayers have to work with.
Glossaries of words, greetings and partings and curses for different cultures give a roleplayer a shorthand for identifying his character as belonging to that culture in daily RP. Histories and cosmologies provide fodder for more complex, scholarly, characters or background for individuals who may have been directly impacted by the forces of fate. A few 'slice of life' stories fill in the gaps as to how different people live in the world. What kinds of food are there and how is it eaten? How do people house or clothe themselves? What's a wedding or a funeral like? What major life events are there in a given culture and how are they celebrated? What current events are on people's minds and, of those, which are threats of some kind?
Much of that can't be represented in game terms but it does give the roleplayer kindling for his own imagination and provides him, and his fellows, with information that they can use to visualize and, with their own words, recreate the illusion. Roleplaying at its best is a shared hallucination that only partly happens in a game: most of it happens in the minds of the players involved.
I don't suspect it's any surprise that many roleplayers have, so far, gravitated to known IPs. Why? Well, obviously, they've got followings to start with. They also have a library full of information on their worlds.
Control means a player can interact with the game on, more or less, his terms. He can sheath a sword, he can sit at a table, he has animated emotes to employ. If there's a low hill, he can climb it. If there are strong themes to the setting, he can embody or enact them in gameplay. There are also universal components to control that appeal to all gamers like intuitive, non-fussy, interfaces and so on. The more a player's character can do what a player wants the more the player forgets he's in a game and that leads to immersion. The fussier and more arbitrary the options available the more detached a player becomes.
Dynamism means a player can't be entirely sure what's going to happen next. Nothing kills immersion more surely than boredom. You can have a great setting with good control but if day in, and day out, life is routine folks find other entertainment probably somewhere else entirely. Games are, after all, for fun. Players themselves make an MMO dynamic because there's no telling who you'll run into or what might happen. This is why ERSB ratings might change, on one hand, but on the other it's how new friendships are forged. Still, many games are too dependant on static content like dungeons and raids. For many roleplayers killing the same monsters, over and over, in the same way isn't going to suspend much disbelief or provide enduring entertainment. PVP games, well executed, like Eve Online can provide wonderful dynamism and immersion but they're saddled also with players that can be malicious and bordering on sadistic. Not all roleplayers are comfortable with this.
The low overhead compromise is a storyteller toolset much like you see in Star Wars Galaxies and that City of Heroes will be implimenting. With these we see the cycle of roleplaying come full circle back to a human Dungeon Master running a storyline for a party of players. Roleplayers who enjoy big events have the tools, as well, in SWG to create truly impressive locales and activities for them.
The high overhead compromise is a living world simulation with dynamic NPCs and randomized PvE challenges. The advantage, to the player at least, of a living world is that it offers dynamism similar to PvP without the immersion breaking behavior often associated with it. Whether it's practical or something we'll see in our lifetimes is an open question. The initial design of SWG called for dynamic spawns of "Points of Interest" to create a sense of real adventure as well as believeable NPC and creature behavior. The latter did appear but ended up lobotomized by the NGE. The former never did.
Simulation is a word which, for our purposes, means believeable. A duel feels like a duel, a ship sails like a ship, NPCs behave in accordance with their cultural or canonical roles, economies function along plausible lines and wars are very big deals requiring enough expense and forethought that diplomacy is a realistic alternative or crucial adjunct. In simulations, actions have predictable consequences and the foreknowledge of those consequences shapes behavior. When players are rewarded, or punished, in line with the logic of a setting immersion is achieved. While there's a strain of thought which argues that simulation is innately opposed to accessibility a good design should be able to balance the two.
Eve Online is probably the best example of a simulationist game but even Eve abstracts quite a bit of stuff. Space travel, for example, is routine and nobody ever worries about fuel for a ship. Who'd want to? Well, anyone who wants to experience the life of a Mal or a Han and juggle the expenses of running a ship, or the consequences of a malfunction, with the potential profits of trade - legitimate or otherwise. Not fun? Well, the job of the designer is to figure out how to make that fun. Many space sims and even HSpace, a MUSH based space simulation, manage to pull this off. However, given Eve's focus on macro-level politics, economics and warfare rather than on single ships and crews (there are no player crews or multiplayer ships) it's a good decision for the design.
When a design respects a setting, at least the key elements and themes of it, by embodying the essence of it in actual gameplay then players are less likely to notice they're in a game after all. If a developer can make a player forget he's playing a game then he's created immersion.
The key to simulation is to sift useless details from essential ones. Overly complicated systems can create so much work that a player loses his connection to the juicier parts of the world and, in effect, are as bad or worse than a poorly designed interface. But omitting essential elements of setting from gameplay will almost certainly alienate many roleplayers.