The Rebellion Era
The Rebellion era -- also referred to as the Classic era -- takes place between the first and the final movie in the original trilogy. Essentially this is where Star Wars Galaxies is set and while that allows for all sorts of locales and characters that everyone loves, it simply does not allow for one very important detail whatsoever; Jedi. In this setting the Jedi are pretty much wiped out and that presents a big issue of players being Jedi. No matter how hard or random you make it to become one, any players allowed to be Jedi is flying straight into the face of the lore here.
People are going to want to be Jedi and so Bioware -- or whomever makes the next Star Wars MMO -- is going to have to address the issue. With this setting the issue is unsolvable unless you simply shrug, let out a sigh and give in to lore-breaking.
The Legacy Era
Here's another question of, "Should they or shouldn't they?" As a setting the Legacy Era is very rough because it's still being written, by three authors in fact. Aaron Allston, Karen Traviss and Troy Denning are each taking three turns writing a nine-book series entitled Legacy of the Force.
Slight spoiler warning here for people who don't want to know anything about the books!
The books focus on Jacen Solo, the oldest son of Han Solo and Leia Organa Solo. Having been tempted to the dark side in his older years, he plays a central role in the series. Jacen becomes Darth Caedus after the fall of his master, a Dark Sith Lord by the name Lumiya. This powerful Lady of the Sith happened to have been trained by Darth Vader and was well-known for using a lightwhip in battle. Yeah you heard me right, a whip of pure energy that very few people in Star Wars lore have every used effectively. So when Luke Skywalker took her down after a few tries, it was no small accomplishment.
Jacen would make an interesting villain to have working behind the scenes in the game. We would also still get most of our favorite characters to interact with in-game. However the problem with this era is that it isn't finished being written so nobody really knows who will survive. One rumor going around is that another core character from the movies could be killed off (Chewbacca was the first, to my recollection) so anything is game. It just doesn't make for a solid game right now, although in the future this setting could be a great choice.
Knights of the Old Republic
Everyones favorite original Xbox RPG is the favorite choice for a Star Wars MMO. It's entirely understandable since the Bioware-developed RPG was well received and incredibly well crafted. All the essential planets that everyone is familiar with are still here; Dantooine, Kashyyyk, Tatooine and Coruscant. There's plenty of other planets as well but listing them would waste my time and yours -- well mostly yours.
Another bonus would be the inclusion of the HK-47 assassin droid, who isn't very fond of meat bags. There are other characters such as the Wookie Zalbaar or "Big Z", his companion Mission Vao and Bastila to name a few. The problem with these guys is that none of them are nearly as memorable as Luke Skywalker, Chewbacca, Han Solo or any of the original movie characters. That's not to say they're worthless by any means, they're just not something that's going to pull in nearly as many Star Wars fans than a game featuring characters so universally well known.
The New Republic Era
This era takes place directly after the end of Episode VI and entails the downfall of The Galactic Empire after the death of Emperor Palpatine. The benefits of going in this direction are fairly obvious; popular characters and a very familiar time that doesn't need too much explaining. The New Republic Era also contains all the environments and landscapes that Star Wars Galaxies has as well. Ideally, this might be the place that a Star Wars MMO launches at and then the first expansion would push it all into the next Era. The only major plus that I feel this era offers is we still get to have Chewbacca and his eventual sacrifice would be an interesting in-game event. However, this era does actually lead directly into another more interesting one as I said before.
The New Jedi Order Era
This one starts of with a massive bang in the form of the Yuuzhan Vong War, which would be the perfect backdrop of a massive-scale game-wide war on several fronts throughout the galaxy. This was a time of much turmoil where the New Republic and New Jedi Order (formed by Luke, it eventually grows quite large too) had to deal with not only extra-galactic invaders but remnants of the old Empire looking to restore themselves to power.
The Yuuzhan Vong were firm believers that anything mechanical was heresy. They absolutely loathed all electronics, droids or anything remotely manufactured. All of their technology -- or "biots" as they called it, seeing the word "technology" to mean mechanical -- was biological. Their weapons, starships, sensors, tools, etc were all biological in nature. They even had bio-implants to enhance their fighting ability. The strangest thing about them was Jedi sensed no force connection in them; Yuuzhan Vong were simply cut off from the force as a race. Probably the coolest thing about the Yuuzhan Vong is that their homeworld is in fact a massive living being.
All-in-all the New Jedi Order Era is a wonderful setting and starting point for a Star Wars MMO. As players we would get plenty of content right out of the box. For developers, it affords them the luxury of having the popularized movie characters set in a time of great conflict that isn't anything like the ones we're all largely familiar with in Star Wars. The best part about this setting is that players would be able to create a Jedi Apprentice class within the New Jedi Order. Not that Jedi would be the only interesting class to play. In a time of war there are all sorts of people with different skills that are needed to do things that Jedi or even Sith wouldn't even consider doing.
I'm sure we've all got favorites, but unless a developer just doesn't care about any of the original movie characters, the New Jedi Order Era seems the most logical to me. Plus, it's just a whole lot more exciting!