I think its going to work just how sneaking has always worked. You get seen, you fail your stealth. Players would need to keep their eyes open looking into the shadows for someone.
I think it will add another experience to the game.

I guess if you wanted to be a better sneak you could use illusion skill to turn invisible, or even Chameleon.
Remember from Oblivion. Skyrim didn't have it.

Thing is, I always see the NPCs when they are sneaking, not sure why it would be any different for another player's character. Unless Sneak added a cloaking affect some way.

It will have to, or sneaking will have no place in pvp (a stealther would be targeted instantly by everyone). Remember this is an MMO, not a single player title where the only others you see are npcs.

Hopefully good, a chameleon/invisibility effect would be best for pvp imo, maybe not realistic but any rogue-like character would be screwed if you were totally visible when crouching.

Since abilities can be leveled, it could work so that at the beginning you can be spotted. after you get the skill higher you're harder to spot. After you max out the skill no one can see you.

I would say great level designs with light/shadows and objects to hide behind..... but that's just not gonna happen until like 2020...

I would say inv. like any lame stealth design

If anyone's computer is updated with a character's position, even if they're invisible, there's possibility of anti-stealth exploits. The only way is to not let anyone's computer know where the character is; the character essentially doesn't even exist until he's detected by the character.

Similar to what other games with stealth-anywhere systems do, but with better detection mechanics.