Every system does. In our particular shared case, that's the nature of democracy and the common law.

After reviewing the legislation, I can see that it would be unlikely for an individual in possession of "prohibited material" to be charged, especially given the provisions in ss101 - 102 of the Classification (Publications, Films and Computer Games) Act 1995 (Cth). This is particular true given the narrow definition of "prescribed area" as per s3 of the Act, which references another piece of legislation - the Northern Territory National Emergency Response Act 2007 (Cth). This was no doubt established within the framework of the former government's push to remove pornography in certain Aboriginal areas in the Northern Territory.

The only danger would apparently be seizure of prohibited material, as per Part 10 Division 3 of the Classification Act 1995 (Cth). But even this becomes particularly unlikely given the provisions contained in the National Classification Code, which establishes the RC and Category 1 & 2 definitions, none of which would cover 80% of MMOs.

If it was truly harming people, or had the potential to, it would have most likely occured already and the law would've been changed. There are many laws or regulations on the books that are dated, rarely used or are simply irrelevant. In some Australian states it is still a requirement to have a person standing 20ft in front of your car with a flag to warn oncoming carriage and pedestrian traffic. In others witchcraft is illegal. There are similar examples in the US, UK and presumably Canada. Granted, these are extreme examples, but I really doubt the gravity that you are giving this particular instance. The fact remains that there aren't any MMOs with extensive drug use, gratuitous sex scenes, or violence exceeding a typical M15+ game already on the market. Agreed, it would be good if things were more transparent -- but bureacracy is a slow-moving beast, and sometimes it is better left well enough alone.