The first Living Campaign was actually not the Forgotten Realm of the 1990's. It was Original D&D.
When D&D was ramping up in popularity it was common that players would take their characters from DM to DM. When the group of us was small we knew each other by reputation and if we knew that character X had some adventures in DM Y game we accepted the results in our game.
As Grognardia points out here, there wasn't as much "stuff" to worry about in the rules. If you were at all serious about DMing you quickly learned what were the problem areas and what was OK. So while each of us made some unique items and stuff we were all working out of the same small playbook. This made it feasible for players to jump from one campaign to another. You can see echoes of this time in the caller system and the fact that the rules talked about 10 to 20 players for a session.
But as everything grew the whole thing fell apart when players tried to bring characters into another game that came from a Monty Haul game. Soon there was just so many DMs we stopped being able to track who was who and the closed game became the norm. Remember at one time Dragon Magazine used to have listing of all the DMs in your area.
Despite AD&D's efforts at standardization it was the death knell for this type of play as there was so many new options that it was hard to reconcile characters between two arbitary campaigns. Given what we know now about the issues of running Living Campaign it doubtful it would survived even if rules remained at the same level of complexity.
Still I remember a glorious summer where I walked all over my hometown, carrying my box of books and tattered character sheet to play with and DM with different groups.
However with the Old School Renaissance this type of play could make a comeback. The type of players that cared for Monty Haul play have mostly gravitated to MMORPGs. It will be interesting to see if this form of gaming makes a return.