Secondly, you're stuck with a situation wherein, if you want to curtail the activity, you have to balance it against a player that is playing in excess of 20 hours in a day -- you're shifting the rate of acquisition curve to the right, substantially.. And what does that do to the people on the left of the curve? It short changes them, and in order to stay competetive, they participate in the secondary market -- congratulations, you've just created your own problem.
As a potential solution to problem #1, some people suggest instancing. Hey, there's no competition if you don't see those people. Well, that's true. However, basic economics tells us that the value of any given thing is relative to both its supply and demand. If any given item has an uncontrolled supply, demand will decrease and its value decreases. Rare items are no longer rare if their rate of entry into the world is not controlled.
So if you spawn an instance any time someone, or a group, enters, and any rare tradeable (or even non-tradeable if you can just run someone through the instance to get the loot at the end) loot then drops, you have a situation where you have mass currency deflation. It’s akin to printing money whenever the supply runs low – countries like Argentina have tried this with decidedly poor results. When this happens enough, you have situations like occured in Asherons Call (or Ultima Online, I don't remember which one), where the players create their own currency -- the currency had deflated to a point of being near worthless and the players found a reagent that had a given fixed rarity that they then used as currency.
If you cede control of drop rate to an uncontrollable mechanic, you cede control of your economy.
....snip...
In the end, this is a social problem, it's a game mechanic and balance problem, it's an ownership of IP problem, it's a game enjoyment problem, it's a community problem, and it's also partially a problem of enforcement.