Sim side occlusion Zones.
The biggest problem I see is that high traffic areas (like clubs) cause the sim to have to poll the neighboring sims and that causes "net time".
Full sim side object occlusion would be difficult to implement, but why not add a land setting that says "don't send neighboring sim data in the range from z.bottom to z.top"
z.bottom and z.top would be manually set (possibly by a script) for the parcel since this feature would be intended to be used by educated users.
To prevent sim edge abuse, the feature would not be available on the 12m strip around the sim edge. This means that land owners would have to divide the land as needed in order to set the feature.
The feature would be disabled after a land join or divide.
edit:
more code like thoughts.
if ( enabled and (avitar.Z > z.bottom) and (avitar.Z < z.bottom) )
{// then
//Sim list = only this sim
//ZoneCube = size of sim
}//endif
Using a cube structure would be redundant for now, but would lead towards smaller zones.