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Is the distance of loading players ever going to be fixed so that you can see people from more than 5 yards away? It is really annoying. If you are concerned about client performance issues maybe you can try to make a slash command to toggle how far you can see players from?
Since it's been applied without us having to download something, it's server-side. And yes, because of visual performance issues in major cities, I believe.
It's server side, and I'm fairly certain it's working this way to increase server stability.
By lowering the amount of data sent to each person regards what's in front of him, I believe.