Version 1.2 of Second Life created much conflict and argument through out the grid upon its release, coming with a flurry of changes that directly impacted SL in ways that had yet to be seen. Many residents didn't know what to expect or how to react to such big changes in the way they lived their second lives. These changes include doing away with the previous tax-based economy and replacing it with a highly land-based economy as well as the introduction of USD conversion.
While the tax burden was lifted from residents and great relief was felt by most residents, the sudden switch to a whole new set of rules confused many (and still confuse some). These rules, which were laid out in a newsletter and in the forums, dictated that residents, under certain payment plans, would have to pay real USD for their land. While Linden Lab did give the option of paying for land with L$, the prices in L$ were (and still are) so high per-month that very few (if any) residents could afford this method. Thus, many residents were left only with the option to pay for their land "tier" (a new term introduced in 1.2) with USD, something that many residents opposed.
These new rules tacked onto then-current payment plans affected those who paid monthly the most. Many residents, unable to afford the extra money that would be brought on by the land they owned, had to release and sell their plots, sadly wiping out many builds and projects as well. Residents were crushed and angered at having to delete what had given them much joy before. Not all were affected as badly, however. Residents who had signed up for lifetime accounts recieved "40 acres and a mule" (as stated by the newsletter--still waiting for their mule), which roughly translated to 4096 square meters of land, without charge. Sweeping in an odd balance, some residents lost land, while others gained more than they had before.
With these new land changes also brought the prospect of converting USD into L$ and for something in SL to actually have a real world value. This caused great debate as well with some residents even feeling betrayed by LL because of previous statements made by Lindens that USD would never affect or be translated into SL. However, it did open SL up to many possibilities: freedoms and economic value down the road (something that at the time no one could have forseen). While conversion of USD into L$ and vice versa did not happen immediatly, these changes did plant the seed for things like GOM and IGE (among other conversion businesses) to have a strong marketplace. It also provided residents with a certain feeling of ownership that could not have otherwise been had.
The land changes weren't completely bathed in bad emotions, however. They also caused such things as taxes and "prim hogs" to go away. By creating a different form of restrictiveness and by improvements in technology, SL could do away with taxes which were a much hated burden on creativity. Many residents were pleased about this fact, especially now that they could attach objects and build without any worry about their wallet. Prim hogging was also a thing of the past since the new land model had incorporated a way for the prim count in a sim to be divided to land owners by amount of square meters they own in a sim. Thus, a resident could not take up all of a sim's prim count unless they owned an equal amount of land, giving them a stake in how the sim should look and how those prims should be used. It should be mentioned that one idea that never really saw light was that prim allocation (how many prims received based on plot size) could be given to another resident within the same sim. While this later could be done via groups, it was an interisting concept that was never implemented.
Other changes besides those that effected the economy and land were put into 1.2 as well. Such things like llDialog, which was a very welcomed functioned to scripters as it gave them the first chance for GUI interaction with another resident via LSL. There was also the ability to customise how SL looks by changing values in the colors.ini file, the first step towards a fully skinned interface. Many small improvements to the GUI and Find window were also thrown in. The way ratings were charged for was also changed, causing some minor confusion and debate in the shadow of the economy and land changes (previously it cost 1L$ to change any ratings on a person; at 1.2 it cost 1L$ for every change made to the ratings).
In looking back on 1.2, many may agree that it had many necessary changes that eventually led to the overal benefit of SL and the community. Others may believe that the changes made in 1.2 could have been avoided and other options would have been better to execute. Regardless of personal opinions, 1.2 was an interesting point in history to see how such changes can affect a community in short- and long-term cases.