I think (and, again, not an official AO3 representative, and I can't even find the original call-for-comment that started this discussion) that AO3 was intended to be a safe haven for fanfic, yes, but only partly for legal reasons; also partly simply for historical reasons, so fanworks aren't lost to the community due to things like Geocities going down or personal web pages being abandoned or ljs being locked. So in order to get as many people as possible to archive there, they've tried to make it friendly to everyone who rights fic, regardless of their personal opinions on copyright law and fair use. And OTW's ultimate advocacy goal is for there to come a day when a special legal haven for fanworks isn't needed; AO3 will still be needed then as a cultural haven, to keep works from being lost due to benign neglect.

I suspect that part of the reason I think of original work as more likely to be bad is that it takes longer to *tell* with original work - if a fan character is OOC, I can tell within about two paragraphs, because I have a baseline, and then I can tab away; with an original character, I have to trust the author for longer, and if the trust was misplaced, I've wasted more time. That's I think close to what zvi was talking about in her post in the dicussion.

And I think the world vs. characters as criterion for fannishness is a really useful thing to think about, because too often meta approaches it as if fandom was all about the characters. Which it isn't, for everyone, and I know several great people who have largely left fandom because setting-based fanworks get so much less love.