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There is a lot of hype about how any kind of compromise on explorability and faction lock is impossible at this stage and would require so much change it will never be done.
But the answer to more exploration and no other consequences is not a complicated one.
The war is already completely illogical - faction leaders fighting over who is emperor and then giving it away because of a vote of their minions?
Invisible walls; 'just add water' instant mountain ranges (that crumble to nothing in later times); Hadrians Wall Mk 1,2,3,4,5,6,7,8,9 ad nauseam... or however the absolute faction lock will 'work'.
The simple fact is - there are so many logical holes in the faction set-up already, why would intruducing another fairly mild one which consequently made TES-style exploration fans happier, be a problem?
... here it is.
1. Allow anyone to travel anywhere without being PvP flagged except in Cyrodil.
2. Add voiceovers which randomise a culturally flavoured insult or snide comment from guards and vendors whilst interracting with an enemy faction player. Make prices higher for enemy faction members etc.
"Come back here once we have beaten your faction in Cyrodil and I will shoot an arrow in YOUR knee - damn troll-brained Nords!"
3. Gate faction-only quests and dungeons (if and where they exist...)
"We need someone who has a chance of succeeding on this quest Bretonian, not some pint-sized southern weakling - now begone!"
The explanation? (as if the game really needs a logical one after the one used for the way the war works...)
The threat from Molag is too great to risk all-out, all-regional war. All the leaders agree. Thus outside of Cyrodil, enemies are bound not to fight one another. If orders from faction leaders isn't enough, let's say the Mages Guild did a ritual drawing on the power of Oblivion - a unique ability they have JUST FOR NOW as the anchors make the two realms closer than they have ever been. So magically, people can't fight except in Cyrodil, there Molag's proximity obstructs the ritual. Hell, maybe Molag set it up that way, maybe the Psijic Order did it with a Dwemer artefact - WHO CARES!
This is a relative doddle to program, makes about as much sense as any other part of the 'metaplot' already rolled out, and allows nearly full exploration without detracting from factional PvP one bit!
I for one will be at least as motivated to have 'factional pride' if the guards and vendors insults are good - probably more motivated than I would be just because the big bad enemy built some walls I wasn't allowed to go around...