If you wander across the blogs of MMO game devs, you see a lot of reference to the 'men in tights' problem. The vast majority of MMOs are fantasy games. SirBruce, of www.mmogchart.com, estimates that 89% of all MMOs are fantasy-based. So it's a pressing question (for game devs, anyway) of why this is so, and does a non-fantasy game have a chance of succeeding.
There are a lot of explanations proposed, from the fact that our culture is steeped in the past, or that the first MMOs were fantasy, so that's the way it is. I think there is a different reason that most games are fantasy. The fundamental conceit of rpgs is that:
As I do stuff, I become harder to defeat.
In fantasy games, you have all sorts of explanations for this, from magical healing, to better armor, to better skill with weapons, to just being physically tougher than the other guy. Levelling up represents becoming tougher and better skilled. In a swordfight, we expect the more skilled fighter to come out alive. And a lot of the attraction of RPGs relies on this: our working on a character and slowly making them more and more powerful.
However, as you introduce technology, it becomes a lot harder to justify this basic idea. The entire point of technology, in a lot of ways, is to replace skill. There is an old saying, popular in the eighteenth century, that "God made all men, but Sam Colt made them equal." This saying perfectly encapsulates the point that technology makes the unskilled deadlier. Non-fantasy games need to be able to account for this. If you have a game where a character can get shot with a gun at point-blank range and almost always survive, that's really hard to take.
Now, that's not to say that non-fantasy games can't do this. Take Eve Online. Eve Online is pretty much as non-fantasy as you get. Eve Online, however, replaces "I" with "my ship". It makes sense that a better, more expensive and technologically advanced ship is harder to defeat. That fits in with our worldview. And thus Eve works as an MMO, where "levelling" involves improving your ship.
However, it's easier for a fantasy game to account for this. And this is the main reason, I think, that fantasy is the most popular genre. The levelling idea, of character improvement making survival more likely, fits fantasy better than any other genre.