First, the "Should it be done" question. I think it should be optional. The proposed /localon and /localoff would be the most logical way to set this.
Now for the "Can it be done" question. I think I'll break this into a couple pieces.
FLHook setting: I'm not sure how FLHook operates, but if it intercepts all traffic regardless of the first character, then it is theoretically doable. This would also make it possible for the aforementioned on/off commands to work.
Local Chat channel in Chat window: I'm afraid this one is probably not doable without the source code to the game and flserver. The Local channel as it is now is implemented almost entirely in FLHook. Only the actual entry and display of the messages are handled by the main programs. FLHook sends a custom-colored PM to all the players on the sending player's scanner list rather than to a unique channel. (For those who don't remember, when local chat was first implemented it showed up just like a PM did.)
In order to add an actual local channel to the game, we would need access to the source code to move the functions away from FLHook.
Finally, in reference to the Admins' point of view, this would complicate the matter for them, as they would need to have a console window open in addition to their main window. Depending on how the system is implemented, it is quite likely that a remote connection to such a console would add extra strain on a server that is quite taxed already. These and other reasons point to why it probably won't be implemented.
Besides, with all the wizardry that Cannon does already, how often does he actually get to play out there?
