A large portion of the Second Life community (1000+ members) currently operate within the limited scope of damage land. A simple solution to the expansion of the Damage System without endangering the general population would be to make it togglable on the avatar level.
An option on the avatar level to allow people to enable damage objects to affect them regardless of parcel settings. This means that unless the parcel forces safe or damage land, damage objects check the avatar to see if this feature is enabled, if so, they die.
Technicals:
Preference option: Enable Damage to Avatar in unspecified parcels. (Default off, prompt that this could cause unwanted teleports from deaths.)
Parcel setting: Damage, Force On, Avatar Specific, Force Off.
Simulator message error when firing at avatars when setting is off: "Unable to interact, Avatar Damage not enabled."
Have llSetDamage(); check the avatar Damage enabled when checking health. If both comply, cause death and teleport.
Allow override for both avatar and parcel settings in Estate tools.
This would require minimal correction to the various script executions and clients, but would allow for a vast improvement in customization of Second Life for gaming purposes that many of us eagerly await.
Damage weaponry sales are one of the largest businesses in Second Life, this would greatly expand it and Second Life's general ability to reach out to the vast gamer population on the web.
For starters, we already have the Force On and Force Off options. I think that most parcel owners who have disabled damage on their parcels have done so because they would prefer that combat not occur there, and would be likely to simply choose the Force Off option, while those who do enjoy engaging in combat would be likely to use the Force On button because let's face it, none of us like the fact that someone could be invincible but still shoot at us in a combat zone (speaking of which, see my issue SVC-2450 about a bug that does seem to let people be invincible in a combat zone). So I don't think that this feature, if implemented, would be utilized much.
However, if it were hypothetically implemented, turning public "civilian" regions of SL into potential battlefields would be a serious problem. Even if an individual selects not to receive damage ("noncombatant", "safe avatar", whatever), there are still elements of combat that can be very disruptive even when they don't kill an avatar. Many weapons utilize particles that can cause client-side lag and are rather disruptive to viewing (and most people don't want to have to go around with particles off all the time), some bullets still push even without using llPushObject() simply because they are a bit too massive (although H4 has thankfully trimmed this back a bit), and in any event being shot is rather annoying unless you're in a combat area.
Finally, there is the fact that some weapons are incredibly lag-inducing. And I'm talking about server-side lag. The reasons vary, but usually incompetent scripters are the root cause. Some guns, for instance, will cause sharp spikes in sim IPS readings, with resulting drops in time dilation. While some talented scripters can create guns that pull only 2-4k IPS even in full auto, I have also seen semi-automatic handguns that pull 45k IPS!!!. Note that this is an extreme case, but there are quite a few weapons that pull 20-50k IPS, sometimes even in semi-automatic mode. At our privately-owned combat sim, we have had to ban many weapons for being too laggy, and we have actually seen certain brands of weapons crash the sim regularly when used.
Look, I like combat in SL as much as anyone else, but just as I would defend the right to engage in combat within specified regions, I would also defend the rights of others who do NOT wish to be a part of combat elsewhere.
There really is no shortage of regions in SL where one can engage in combat. While there are only a few public, Linden-owned Damage-enabled sandboxes, there are dozens of privately owned regions where one can engage in combat using the SL Damage system (usually militaries) or proprietary resident-developed combat systems (usually leaning more towards roleplaying, but not always).
Incidentally, there are some roleplaying sims that allow individuals to play the roles of "civilians" or "noncombatants" trapped in the crossfire, if they so choose. I can certainly see how this adds a certain level of realism to combat, and I understand why you want to implement something like that grid-wide, but it's just an incredibly bad idea to do so, and it would cause a large number of problems that I don't think you foresee here.