Wouldn't work. One of three things is true: Either "gold cannot buy anything of value, in which case it's worthless (this is common in many games), whether or not it can be traded to players (if it's worthless, nobody will even really WANT it); or it can be be vendored for something that is tradeable and of value, in which case this becomes your target item; or, finally, that it can be used to purchase something of use to you, but that item cannot be traded, in which case you need only a finite number of those items (and thus gold is worthless). If there are additionally no tradeable items that players value, your game has no economy and you're basically playing a single-player game which just happens to occasionally contain random people in it posing as loud, offensive NPCs.
A failure to create an actual player-to-player currency that isn't horribly debased will just bring us to Diablo 2's economy: Gold existed and could be traded between players, but it was easy to acquire a large quantity of it, and nothing of value could be purchased in-game with it, so the currency was too debased and everyone traded in SoJs or perfect gems. And don't kid yourself that people weren't farming THOSE, either. People worked out exactly where they should be grinding to maximize the drops of that. A game with no auction house and no player trading currency still developed its own currency, farmers, and trading sites. The human is an economic animal.
I am not seeing your point here. Currency buys vendor items. In EQ, they had potions that were very expensive, but useful in some sitations. There were casting components for spells casters used which were pricey. People had to buy food and water all the time, there were ranged weapon consumables, crafting components, buying spells, armor/weapons, skill training, etc... So, money had a purpose and it was pretty sparse so you had to pay attention to it or you would run out (it was not uncommon to have to make a couple trips before you could afford all of your spells at that level). It isn't like games today where the vendors are just a place where people unload all of their garbage. You actually bought useful things off them and they were a functional part of the game. So money would be used for playing the game and controlled by that development, not influenced by player gimmicks and abuses that player trade often produces. It means a player wouldn't be able to sit on his ass in the AH and get rich never having to put any real play into the game to be able to afford all those things I mentioned. They would actually have to go out and "play" the game. /gasp
The other portion is the barter system. The gear is trad able, so you can do what you will, but since there is no money system to exchange, people would simply trade gear for gear they are looking for. By the way, on TEST EQ, we have over 800 people playing and it was a barter system. We didn't trade in plat, nobody farmed it to care about amassing it. So the system works and worked fine for 2-3 years before I left it after the wipe and the production servers is where I saw all the extensive currency trade.
The thing is, EQ had a terrible interface for bartering, imagine a system as I mentioned. It would work fine if it was practically implemented.
edit:
One point about vendors that I think is important here is that in EQ, not only were there many things that bought off the vendors as I described, but most everything that a player picked up off killing mobs and the like could be sold to the vendor AND those items could be purchased by other players. Most things in EQ had use (there were very few "trash" items) be it for quests, crafting, spell use, etc... The beauty of such a system is that it allowed the developers to set pricing controls.
This way people either use the barter system to trade for something (or some other game mechanics, I think brad talked about using old gear to sacrifice for buffs ala EQ2, or crafting, etc...) or you sell it to a vendor and someone ends up buying it that way.
Obviously there are a lot of things I am not considering as negative or even beneficial, but it is an idea that has not been done in MMOs (well bartering only in early EQ) and would be interesting to see how it works. I wonder... Maybe an EQ emulator server is in order with some modifications to such a system. My programming skills are extremely rusty, but I might be able to muddle through to get some sort of system working. The vendor system is already completely implemented in EQ, the barter system would be a bit difficult I think though... Maybe not... EQ does have a pretty extensive broker system, it might be able to adapt to my thoughts.