I worry that by opening the server to Create your own monsters well make a culture where its easier for those who would use MPCs as a blunt instrument to bully the player base. To get personal satisfaction rather then actually work towards creating interesting RP scenes or fleshing out an established character. This in turn could increase the whining and accusations of GM favouritism when some people are approved and others not.
Actually, I have a feeling the opposite will happen.
See, consider that currently, with MPC's, your MPC represents a massive investment of time, and something you've become quite attatched to. To actually antagonize someone like you want to, you must put yourself at risk. Since you don't want your character killed, you minimize that risk any way possible, leading to high-level characters ganking and utterly disabling lower-level players before beginning roleplay, giving the target no chance to fight back, and generally souring the scene before it starts, since the target feels understandably ganked, and possibly as if the DM is just pwning them for satisfaction rather than RP, as you say.
If you've only been given the character for a month, you don't mind so much if it goes, and want it to go out with style, rather than not go at all. Therefore you take more risks. You begin evenly-matched fights with equal-level characters, and have a scene where the target feels endangered, though has a chance, making things a lot more tense. Any good DM will tell you that players don't respond well to being faced with an impossible opponent, or defeated without a slither of a chance.
As for the DM/CC favouritism, we already have the PrC and ECL race applications. Some go through. Some are denied, because they don't pass the grade. There is always going to be the perception from the denied that the approved are simply DM pets or friends with people on the inside.
People using MPC's to grief people will be dealt with exactly the same as people using powerbuilds to grief people, and likely wouldn't be given the character in the first place.