They pay an incredibly high price for some design decisions that I think users don't even get much value from. It turns out that most users would rather have a private island than live on a continuous continent where neighbors are always putting up eyesores. If you were to start with that fact, remove the requirement that private regions even exist on the global map, and let them spin down when no one's home, then you could give paying users a lot more space for their money while also reducing the company's spend on servers.
While I take your point about work on Second Life not being super transferrable to any of the AAA game engines, it seems like it would be very transferrable to creating such engines themselves. And what engineer wouldn't want to help build the world of Snow Crash or Ready Player One?
I think the deeper problem is that Linden Lab has stopped prioritizing investment in the SL platform. They've set their sights on creating VR-focused Sansar instead. But it's tough to convince people to move over to a new world when it means leaving behind the bigger community, the bigger economy, and all the clothes in their inventory.
Linden Lab tried that. That's what Sansar is. It averages 13 concurrent users on Steam. Maybe some more who signed up outside Steam, but under 100. Sansar is a "VR game level loader", not a world like SL. Somebody creates a level map, and others can visit, but not change much. Sansar has a Star Wars prop museum, a Ready Player One prop museum, etc. They look great. You visit once, and you're done.
Other VR game level loaders are SineSpace and High Fidelity. (High Fidelity just gave up, and "pivoted to enterprise".) They also have user counts in the 2-digit range, but worse content than Sansar. The hook for that market segment was supposed to be VR headsets, which turned out to be a niche product. Even VRchat, after a surge in 2017, dropped to about half its initial peak and is stuck at a few thousand concurrent users. Facebook Spaces? Whatever happened to that?
Meanwhile, Second Life continues to plug along, with 30,000 to 50,000 users connected. That's about where GTA V online is, and would be 11th place on Steam if SL was on Steam. SL was maybe twice as big at peak, 7-10 years ago.
Hence the legacy code problem. It runs, it's profitable, it has a significant user base, and it needs improvement.