Skill based combat in a MMO environment is prone to horrible lag and inconsistency (read: it's fucking hard to make it work right)
Combat which is not based on the loot you get, means they have to find a new hook for you to waste your life. This is the part that makes them popular to being with, loot is like crack man.
If the possibility of the instantkill is always there, they can't make fights go on forever (fucking million hp bosses), making progress a lot faster, which might mean one less month of your money.
MMOs want the large subscriber base (or now, a large crowd that might be cool with microtransactions) and a game where you could potentially be killed instantly, possibly a lot, just isn't attractive to a loooooot of people. Probably the moajority of MMO players would hate it.
I hear what you're saying about lag. We like to pretend MMOs have evolved but we're just grinding in DX11 now.
The "crack" of any MMORPG should be the community and the friends you make, not the loot. I know, that's truly idealistic and wishful thinking, but MUDs have been that way for years actually. The most popular MUDs usually have a focus on player vs player interaction, not just PvP combat but also PvP politics, etc.
Instakills should only work vs other players in PvP, never during PvE. For instakills to be part of PvP, then we would need real-time combat, because the instakills would require preparation (your opponent having broken legs, or a paralysis affliction, or something). Modern MMORPGs haven't achieved this yet, as we know.