I agreed with most of what you said, but I must disagree with that. Yes GM can be friends with players, but there must be a barrier - a clear difference between them. This barrier is there to ensure the staff's authority (better to rule by good reputation instead of by fear of punishment). Without that barrier, players will think that what the GM said are merely suggestion, will stop showing respect to the team and the GMs themselves could forget their impartiality.
It's very difficult to answer set-up wise. Some players prefer high rates, other mid rates or low rates. And there are categories even among servers featuring the same rates. One thing for sure, if there is no incentive, players will invariably get bored. That's a reason why low rates tend to stick around longer (some high rates have been up for many years, though). The more difficult it is for players, the more rewarded they feel when they get this character at that level or loot this card.
Then there is the luck factor. Some servers get 100 players during their whole life whereas other servers get 400 players even before the launch.
You gave me an idea with regards to the hierarchy.
I always prefer setting it to a more difficult setup for players. But I get very unlucky with the players that come in, most of which are lazy.
I wish this was possible. Except we live in different countries.