I agree that SL as a whole is not now and cannot be a democracy. It is an asset to a profit oriented corporation who over the years have arbitrarily changed the Terms of Service, not to the benefit of its users.
But, as Han Held points out, we in the Confederation of Democratic Simulators (CDS) have existed as a democracy within the bounds available to us of SL, for 12 years now. It has many challenges and it doesn't appeal to people who aren't interested in group dynamics or politics all that much, but to those who enjoy being a part of how things are run, like to work within a group to create something bigger than themselves, or who simply want to find a place where they can be useful to a community, it has proven to be sustainable.
There is something compelling about working out how to make democracy work in a virtual environment where many real world cultures and expectations come together. Around the real world, democracy has manifested itself in various ways, and this experiment of the CDS has become its own version as well. When it was begun, nobody thought it would last longer than 6 months.... but here we are still!