I don't dislike the idea of the bad guy winning once in a while but it has to be done well...with impact. The one game I can think of that did this pretty well was FF6 where Kefka ends up "winning" about halfway through the game. Because of that your group loses in a big way, but you rally at the end and come back.
I'm not convinced that doing that in an MMO would work well. Perhaps this whole thing with Sithilus will be interesting but we will see. Poor Azeroth must be feeling tired of all the people trying to destroy her.