I think an island would be beneficial to newcomers, as it would isolate them from more harassment than needed. (imagine high levels screwing around in the only place new people can level...would drive lots of people away) So, to supliment my idea (and as a product of boredom), I've created a small town in Tiled that I think would serve well on a newbie island (or just an isolated town, if the island idea just CAN'T work)
1. This is the academy. This building will have lots of books to read and mentor NPCs to receive advice from. A couple of these NPCs should provide a couple starter quests for either a small amount of experience, some currency, or both. The academy basement, however, has a slight maggot infestation which new players may need to clear out.
2. My idea is a temple or something, where people are brought into this world by the gods. This however is entirely open to debate, and this building can simply be used for resurrection upon dying, healing when hurt, and some other method of introduction into the gameworld.
3. This is the residents quarters. Any NPC who doesn't live in the academy lives here, and it is mostly a few soldiers who have been stationed here to keep the town free of mobs. The NPCs in here will offer some extra pointers to the game not found in the academy.
4. Newbie island shop. Here you can buy starter equipment and other items, as well as sell items for currency.
5. Restaurant/pub. A place for the newbies to hang out and tell stories of their maggot hunting or something. Just a nice addition to make people feel more at home.
6. Bridge to the rest of the island. The soldiers stationed on the island dug the trench to isolate the town even more, so a bridge was constructed to allow players to access the rest of the island.
7. Portmasters office. An NPC should be outside this to allow passage to the mainland. If a few towns are in place by then, a newbie can select what town they wish to start in. Some sort of limit should be imposed to ensure the players have either a good footing in the game or a good understanding of it. Requiring a certain amount of currency, or a certain level, would serve these purposes well.
What this newbie island would excel at would be isolating new players in their own environment safe from more harassment than needed. Bored higher level players wouldn't be able to drive off new players by killing off the only spawns they can kill (and it WILL happen when the game gets a larger player base, might as well plan for it now). It'll also give them a place free from PvP (if the whole gameworld gets set to allow PvP, which I hope happens for the depth of gameplay) so they can get a foothold safely.
It would allow a slow, easy, and safe transition into the game environment without too much hassle to repeat players. Repeat players would know what to do, where to go, etc. and easily pass the requirement to make it to the main area of the gameworld. Once on the mainland, and of the few selectable starter towns should have an extension of the academy somewhere in the town so that if they forget something, players can visit this branch of the academy to brush up on something. Or hit F1 if they remember that from the tutorials.