Well, it is up to you, you can choose to allow total PKing freedom, party vs. party combat only, or no PKing at all. It's your call. There's also the very cool option regarding 'official' and 'unofficial' characters. Official characters will be stored in neverwinternights.net's Character Vault, which monitors the advancement of every character. If you choose to cheat, or say you want to import a character from Baldur's Gate, that's fine, but the system will automatically notice that your character is developing too fast.
Unofficial characters are a great addition to the game.
They provide a nice alternative for anyone not wanting to deal with a slow advancement process, or for someone just looking to blow off steam. Each server will have to decide whether or not to allow unofficial characters into their world. Once your server is online and people are starting to explore your world, you can really start flexing your DM prowess. Throw sudden obstacles in their way, take control of monsters or NPCs without the players knowing it, and generally do everything you can to make your adventure as involving and exciting as possible. You can also grant other people DM powers, meaning multiple parties in any one game could each have their own Dungeon Master.