Oh we handle a lot of that mostly fine today even for a personal machine / console. There's a lot of different ways you can represent another player 'character' to reduce CPU. Memory and storage speed is lacking though, because you need to either pre-cache a lot of assets or fetch them on the fly. So you can't have an insane amount of dynamic objects as an example, but I think we'd be good if everyone at least had an M.2 drive. (Consoles with standards have PC beat there)
But there's a lot of tricks we use that allow us to share materials and texture sheets across a lot of objects reducing draw calls so it's not a huge problem. Reducing draw calls is basically my life.. lol
We also gotta separate out what the Client (player game) is and what the Server is here, because they both have completely different demands. That's not even talking about the 3rd layer, which is storage/DB stack - Instances will typically have their own local DB, but will always communicate progress across a master set, and then trade non-critical data to individual instance when you cross them. (This is a huge technical problem that can introduce duping or hitching by travel)
The main bottleneck for MMOs specifically is Server side instance CPU - Because you can have all the bandwidth, memory, storage in the world, but CPU is the largest gatekeeper to it all and unfortunately we love large zones with player and environment cross communication, and a lot of actions. Remember player interaction is mostly exponential, not linear.
So that means a chunky game thread, then some servers have a network thread, and even sometimes a physics thread, and I think you can hypothetically make a Navigation thread if you need to update a complex AI nav and not bake it. Players have their own client Nav but server will usually know when client is OOB. Memory is basically ever-expanding, still expensive but a linear expense. CPU, the chonker that needs to run the big game thread for each instance, is the meat. That's the largest expense, and it's not a linear one.
We need to remember that a lot of MMOs and online games in general can't just upgrade their whole infra on the fly. So not only is their equipment potentially archaic, but the method in which they USE that equipment probably is too.
Every MMO is going to suffer from all of these issues, it's just a matter of how they deal with them and how they hide the seams. Like as an example, the server can hypothetically layer instances on top of each other that players phase in/out of, but still get some movement information from. So it can LOOK like there's thousands of people, but really you're seeing ghosts and your instance only has 10 players. This is easier with places that are static like towns, but not so much in combat when you need to have a master thread keep track of all interactions of all layered zones.
It's expensive for them either way is the problem. lol
WoW on a technical level does most of this extremely well, and it's super surprising to see them not only keep up with current tech, but also basically pave the way. Tab Targeting as an example, behind the hood of Action Games - It's all a similar 'target' registration system, so people can think it's archaic BECAUSE of Tab Targeting, but you make free swinging and shooting combat and it wouldn't be any different to the server. The fact that they can keep the tickrate high and know how to blend instances without hitching (for the most part) is pretty insane to me.