The server isn't necessarily ruined, but if you're a min/max type of player you'd certainly be upset at not having the chance at some of the drops. On actual EverQuest servers this wasn't that big of a deal as the next expansion with better items came shortly after, on Project 1999 this is a much bigger problem.
You can't normally kill the sleeper, that was never the intent.
The "normal" event is that it kills everyone in the zone, goes from the Sleeper's Tomb to Skyshrine killing everyone, kills Yelinak (the boss of Skyshrine), then it disappears forever (until a much later extension brought it back).
I think the only zone that's permanently changed is the Sleeper's Tomb: the warders don't spawn anymore, meaning their loot (which is the end-game loot of Velious) becomes unavailable. This is what makes waking the sleeper a dick move on Project 1999 servers: progression stops at Velious, so it locks all other players out of that gear (on "official" servers waking the sleeper after having farmed the warders might frustrate the second and third guilds for some time as they'd miss out on getting that gear while #1 would be working and farming Luclin).
Killing him is a thing that you can only do by using a specific strategy, and doing so has no real effect on anything, he still is awake and you still lose the warders, and therefore the good loot. Since this server is pegged to this specific moment in time when the first two expansions were released, the subsequent content with the better loot will never happen, so now people on this server have lost the ability to get that loot, and they're salty about it.