I think the main function of the system is that there needs to be something to deal with friendly fire and so on within the Empire and Kingdom factions. I don't see it being used in the wild - which is basically 'lawless' territory. In other words, if an Empire player shoots and kills another Empire player, it is not hard to get that information and then people can act on it, sending the 'criminal' to Saltberia.
The issue for me is the ensuing arms race, as players get mad they were punished for doing something, and then find ways to cheat the prison system. Doing hard to track things like setting off a chain of explosions. Grabbing faction loot and simply dropping it where no one will find it. Taking ships and randomly crashing them. Taking ships and pulling out the fuel rod and dropping that where no one can find it. So on and so forth.
The root of this problem is as follows: players love a challenge. If they cannot find sufficient challenge out in the game world, they might find it hilarious or fun to find that challenge within the factions by 'griefing' the own team - for lack of a better word at the moment. As the Prison and other punishment systems get ramped up - now the player has a challenge. The challenge to defeat the system is now more appealing than the challenge of playing the main game at all. As such, they spiral into constantly trying to figure out ways to defeat the system. Generally, these players are more experienced and quicker to adapt than devs, and as such get more reward for their time spent than they receive punishment for.
When you make the most difficult challenge in the game the defeating of an in-game system, you breed players who will do nothing else except find ways to beat that system.
However, the duality of its benefits still exists, and for the common player, being sent away to prison will have a numbing effect on their desire to try the same things again in the future. However, often times this makes the player feel detached from the game, either quitting the game as a whole - because what drove them to inner-faction team killing was boredom in the first place (not finding enough external challenge) - or being a shell of the player they might have been if the game pushed them enough to become that potential.
This is compounded if you let other players be the 'judge' on who gets sent away, as well. Then a band of salty players might not be happy you're not playing the game their way, and then banish you to prison by leveraging their size and political sway, not understanding the multitude of ways players can approach the game.
My preferred way of handling this is to have no such prison system, and simply make it clear within the faction that if you get kicked out, you don't get back in. Empire and Kingdom are much like a military, and if you screw up, you get kicked out, period. As those players get kicked out, back to neutral territories, they have little else to do - no more team killing, no access to all the loot and ships, and they'll have to work like everyone else to get their first ship and get out into the game world - where the safe zone is the main area of action, and if they want to go out into the wild, good luck. The incentive to play nice in the dev factions or else get kicked out, I think is good enough.
