Cory Doctorow wonders whether it's possible to have a democratic on-line game and doubts that it is so. (Boing Boing, InfoWeek).
However, why not?
Say such a game is run as a co-op. The practical, day-to-day running is exactly the same; the only difference is that instead of shareholders, the board is responsible to the players ("members").
Cory suggests that elected representatives might tend to give out game objects and levels; but that's just the game equivalent of panem et circenses — a problem so old its name is Latin. Now, we don't quite have a solution, but we manage to have democracies anyway, and the problem would be quite as dangerous to countries as it would be to game worlds.
As Cory writes, the object of a game is to have fun. I would expect that candidates that have some plan for keeping a game fun — or even just some competence at running an org — would do at least moderately well in elections.
There's another aspect: unlike countries, games are discretionary — it's much easier to up and leave, or just spend less time in it, and it's practically impossible to close the borders (as countries can do). Since games are usually more fun the more people play them, it's policies that keep and recruit players that are likely to be the most popular with the electorate.
Finally, there are open-source games (like Wesnoth), which should have the same problems, and they don't.
(Note: the above is based on the assumption of a server-client game, where control of the server is control of the game. Peer-to-peer games have different problems and opportunities; I'll leave those for another day.)
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