More and more online games are planning to allow the use of real money to purchase ingame items in addition to the standard ingame currency. Diablo III for example, which will be released next year, will feature a gold-auction house (only ingame gold allowed) and a real money auction house (only real money allowed) to trade items between players inside the game.
Gresham's Law says that: "When government compulsorily overvalues one money and undervalues another, the undervalued money will leave the country or disappear from circulation into hoards, while the overvalued money will flood into circulation."
People are worried that ingame gold will be severely undervalued and real money will be dominating because the developers of the game get their share from real money transactions and want to push this currency. They are the government that might compulsorily overvalue real money and undervalue ingame-gold. This means according to Gresham's Law that we will see the ingame currency gold vanish over time, leaving the real money auction house as the only option to buy and sell items.
This leads to the question, if Gresham's Law can be applied to this scenario. What are the reasons why or why not Gresham's Law will effect online games with real money and virtual currencies combined in the same market.