We are naturally reminded of another favorite Twilight Zone episode, "It's a Good Life" (aired 1961), where a charming young lad rules a small town by vast psychic powers, mitigated only by his whims and the desperate normalcy of the townspeople. The 1953 Jerome Bixby story of the same name is also excellent. As Gardner notes, the Serling et al series offers many prescient guides to our emerging technoculture.
On reflection, these tales are far more terrifying than the Second Life implementation. When will an MMOG offer such fears as awful transmutation? Or the threat of the end of the world, right up to the town limits? Not as a result of business failure, but as part of lived experience, in-game content.