Now, bear in mind that this is assuming I am reading the instructions for this correctly......

I am thinking about installing and running a MUD on my webspace, but wouldn't have very many players on it, maybe 20 at most to begin with (but probably not that high). Would this be allowed?

We can allow MUD only on dedicated server.
There are some reasons:
1. Such sofware makes high CPU load.
2. MUD and IRC are very dangerous for server security so we cant host them on server with many clients.