I'd buy up Istaria, but not update it in the traditional way. I would let it be as it is, with the few hundred people playing, with the 500-1000 subs. But what I would do with the intellectual property.
I would start a new game kindof an Istaria II. Use a new game engine (this is what Unreal III engine at it's worst?) something between WoW's engine and CryEngine. Recreate all the classes/spells/land almost in replicate, just make it look better.
It'd be like going from bunny ears to HDTV.
I don't see why this isn't feasible, plenty of companies make NEW games all the time, wouldn't it be easier to make new graphics (which have to be done for new games anyways) and just use the same basic principles of a game you just bought?
This would then allow me (as the game company owner) to advertise the game as New and highlight all the awesome things about istaria that would get everyone's attention without them saying "yea but it looks like Warcraft III if you let people control the camera"
anyways just my thought. This is the only way I can see Istaria becoming a hit again, nobody is joining World of Warcraft because they just saw Patch 3.2.1.1.2312.3.123123.123. come out and it's got a new cool quest.