In my eyes there are three different categories when discussing faction balance in a 2 or more race vs race pvp game.

Category 1: Not enough players in a faction as a whole

This is when you take a census of an entire server, weigh the faction balance, and discover one faction grossly outnumbers the other(s).

Category 2: Not enough members of one faction online when needed.

This is when the overall balance of the factions is stable, yet due to differing playtime's each faction has a majority online during different hours of the day. This means that faction A always wins in the morning due to overwhelming numbers and faction B always wins at night for the same reason. This phenomenon normally takes several months to surface as the players need time to get settled with the faction/guild that they feel the most comfortable with. Players that are online when they are and whatnot.

Category 3: Lack of significant player interest in the event leading to a tip in power to one faction.

This is normally a temporary issue, however it has been observed to occur over a period of several months ultimately causing players to become frustrated with the power imbalance and rage quit. This phenomenon is caused by a sudden lack of interest in the event due to various reasons. An example would be a whole guild needing to be flagged for XYZ so they participate in an event for a time, after all members get what they need the guild moves on, and suddenly there is a large drop in participants.

What are your thoughts on these three categories, and how do you think they should be addressed?

1 - megaserver

2 - "instanced" pvp campaigns

3 - see one and two

Those solve neither issue. Just because you have the capacity to hold more players than a standard MMO server does not mean your factions will be balanced. Same as just because your PvP is instanced does not mean that the battle will be balanced unless you plan on having a 300 player signup list and waiting to start the battle until both sides have full lists.

This game is following Darkage of Camelots system which worked very well because it's set up balanced itself. Other games like GW2 changed there set up around and made it so that this system did not work.

Here is the 2 key points in DAOC's system that looks to be the exact same with ESO's Cyrodiil.

(1) The large map that devideds the 3 sides territories. As one side starts to push in (invade) into another alliances side they push further away from their lands. the further they push the longer it takes for death releases and reinforcement to get back to the battle line. The supply line also becomes harder to protect. the enemy can send a group to break this, also the 3rd alliance like to do this as well. if the supply line is broke, those reinforcement and death releases will take a very long time to get back to the battle line. On the other side as the losing alliances keeps losing stuff and they are being pushed back it will actually make them stronger because they are getting closer to their border keep where the death releases and reinforcement can come back very quickly.

(2) As one alliance starts to dominate the map it will be harder to hold onto all that they have. the main key is when they start taking control of the other alliance's Elder Scroll Artifacts and bring them back to their lands. this is the point when the larger alliance has what the two smaller alliances really want. At this point the fight will fall upon the larger alliances's lands because the main goal of the Elder Scroll Artifacts are there. The larger alliance now has to defend on 2 fronts and basically split there force in half to defend against the 2 smaller alliances that can each go after a different Elder Scroll artifact that the larger alliance owns.

Interesting, I would of thought class or race imbalance would be in there. My understanding is usually a overwhelmingly overpowered group starts getting bonuses in other games.

Really, it's something to keep in mind but I wouldn't worry about it till the game starts.

Unless there is some compelling reason to play as one faction over the other, statistics will take care of the issues you bring up. In other words, it will all average out.

It will average out, but it will take longer.