I've been trying to figure out how to write the MMNG design up, but it's not something that can really be summarized very well because I can't say, "well, it's just like X except Yier."
So, I guess I'll talk about it in little parts.
This first part is how not to play a game.
When you let people build their own stories in your game, it is a common mistake to think that most players will want to do that. In actuality, although more than 50% of your players will probably try it out, fewer than 5% (and probably closer to 1%) will produce much. And their skill will be, for the most part, pretty low.
A game which allows people to generate content cannot, therefore, be simply a game that lets people generate content. It has to have a backbone of other kinds of play.
For example, SecondLife has a strong socialization, grouping, and trade backbone. This isn't actually very much, and is probably responsible for the rather low player count.
The problem is that any game which players can generate content for rapidly unbalances. The "first person shooters" in SecondLife are worthless, because it's relatively easy to build a nuke and kill everyone in the quadrant. The more tightly you control the game, the more balanced it is, but the less player content interacts with it.
The solution is fairly simple: partitioned player content.
This is sort of like not letting that irritating twink play your tabletop game with his level eight million wizard of god-slaying.
There are, as far as I can tell, two big ways to partition player content.
The first is a "hard" partition: in order for player content to affect you/the world you're in, it has to follow your rules and/or be explicitly allowed. This has the major downside of requiring players to do a lot of work to manually tweak these settings, and that has a bunch of downsides.
My preferred method is a "soft" partition. By using a carefully designed system of creation, you can have player-created content "decay" as it gets further from the source. This can be a universal decay, or it can be a social decay (IE, the more people use it, the less decay it suffers).
The hard partition means that when Avagadro makes his 6.0221415x10^23-bladed sword, it is useless unless they allow for hugely powerful swords in their world (or worldview).
The soft partition means that Avagadro's sword can still be used anywhere, but the metaphysics of the universe differ enough that it is blunted to a reasonable weapon.
There are a million ways of dealing with this in particular, mostly linked to how your creation system works and what your setting is.
Annnnnnyhow, now that we've wandered off, let's bring it home:
Using a system of automatic (or mostly automatic) re-balances, you can bring player-generated content under control, and allow it to be used in minigames without crashing the game's balance too much.
You do lose some of the freedom player-generated content normally provides. For example, you can't allow people to program objects using a powerful script code, because they'll work out some algorithm which makes their otherwise-generic object into a killing machine no matter how weak you make it.
There's ways of minimizing this loss - use of energy costs and a restricted scripting dynamic, primarily.
But the basic idea is relatively simple:
You can't have a game which focuses entirely on generating narratives: not if you want it to be popular. But player content (narrative or otherwise) normally unbalances the other games you might include.
So, allow it to be unbalanced, but only in a limited scope.
That allows BobTheBreaker to design a narrative in which there is a god-king Centennial who kicks all the ass... but if he includes Centennial in other people's narratives, unless the local author allows for Centennial's power, Centennial is stuck being a moderate power level.