This concept may not be terribly hard to implement*, but you do need to keep in mind the amount of memory such a system would need. Whenever a group of people went into an instanced dimension, the server would have to generate the area they were in, or at least put a version of a premade map into memory for them to play on. If you have multiple groups of people running the same instance, then you would have multiple versions using up more and more memory and eventually bogging the server down.
Now if you meant that the entire server would have only one copy of the dungeon, and when that one copy is completed and vacated it is deleted then remade. That would save much on the memory side of things (think a 40-man run instead of a 5-man).
*note, I have not even breathed towards the code in this and in no way want my hypothetical brouhaha to be thought of as fact for that one statement.