This is an interesting concept. I remember playing Lineage II way back in the day and, if I recall correctly, there was no auction house. There was a trade system in which you could sit your character down and buy/sell according to a set quantity/price. It kept the cities full of toons, but it also littered the streets with countless AFK characters set up at market. Your idea of setting up a stall is a good one, but if we have large server populations I could see there not being enough room in the cities for a ton of stalls.
Of course, this could be handled in all sorts of interesting ways! Perhaps there are only a certain amount of licenses in each city and they need to be competed for. But if P2P trading is still allowed, this could create a black market situation... oooooh, the possibilities are endless!
While we're on the subject, the auction house system has been pointed to as a reason that modern MMOs have turned into lobby games, where most players just sit around in the newest expansion's city, buys from the auction house, waiting for the next RDF run to start. *Yawn*
The game economy, of course, is one of the largest aspects of an MMO and I think that it can be used to drive community interaction. I strongly support the idea of localized markets because it will force players to travel to other locations in the game if a commodity is not offered (or sold out... or outlawed... or... more endless opportunities!) in their current location. It's a fantastic way to fill up locations that would otherwise empty out as a server's player base reached max level. Local markets also inherently create a competitive market that shrewd entrepreneurs could capitalize on and create interesting economical situations in.
Finally, I'd like to say that your ideas are really interesting, if a little hard to imagine how they might be implemented. I think it's such a cool idea that some players could spend most of their time in-game as a tradesman or businessperson and enjoy the economical aspect of the game, rather than log-in -> raid -> log-off. Players and guilds who participated in the market that you've explained could really create their own little economy game of production and trading: building relations, supply networks, distribution hubs, etc.
Hopefully SoH veers more towards the "old school" route with the game and avoids the whole "it's an auction house, but honestly everybody just clicks the "Buy Now" button... no reason to leave this one city since you can buy everything from any location, so please don't feel the need to travel anywhere outside of this one location" auction houses.