I'd prefer a mix of the two. There are some things that should not change, because they would have too drastic an effect on the community as a whole. Your example of the outcasts overrunning liberty is one such example. I dont think any faction should ever be forced out of existence, and especially not a major faction like a house military or police group.
Similarly, while progress might be made in the little rebellion wars we have going on (like the mollies vs bretonia, bundschuh vs rheinland, dragons vs kusari, etc. etc.), I dont think that either side should ever really 'win', because it would put an entire faction of players out of the picture.
I do think that players and their RP, both in game and on the forums, should have a bit more of an effect on how things pan out though. I'd like to see the occasional base change ownership if one side does well in planned events, but it would have to be a base that is not critical to the functioning or existence of the original controlling faction. I think that territories should be flexible and ever changing, with each patch the effectiveness of players in pvp events should change what faction controls what space - but once again, it should never put a faction entirely out of the picture.
One such example is what we're doing with the order/keepers/bhg in this recent event - the order lost their homeworld and are having to move. While toledo was a very, very critical planet (and minor an equally critical system) to the order's existence, a new system was added that could serve in the same capacity while allowing the story and game environment to change and progress.
I'd like to see these territorial changes, these alterations of who controls a base or an area, done more often with regards to major wars going on in disco. More events like what we saw with kusari-bretonia, where kusari took over several bretonian bases and even half of a bretonian system. That was a major change that heavily effected many players, but did not stop their faction from playing entirely, and made things more fun for both sides.