The term Dungeon Master didn't actually appear in a D&D book, IIRC, until Supplement III.
The earlier term, referee, seems to have been pretty straightforward early in the Blackmoor campaign. The reference, in D&D Volume 1, to players taking the roles of monsters such as Balrogs or Dragons apparently harks back to early practice. The referee did not have to decide what Sir Fang or the Egg of Coot would do -- because the player of said power would decide for himself.
Even after the mapping and stocking of dungeons was left entirely in the hands of the DM, the referee role had plenty of scope because "the referee to player ratio should be about 1:20 or thereabouts" -- and because "it is probable that there will be various groups going every which way and all at different time periods."
The main part of the extra burden on a DM in emulating such a campaign with more limited resources is modeling the effects that another three or four times as many "adventuring parties" would have.
The original game design indeed "assumes proactive and ambitious player characters with goals who will, when left to their own devices, seek out these goals." A lot of "plots" could be expected from the collisions of such players' ambitions.
Nor was the number of such schemers limited to the number of players. There is no rule in the books against a player having more than one character in a campaign. Taking into account the suggested reckoning of time, a player might by such a rule be barred from play altogether for several weeks because of the circumstances of a single character. Moreover, what was the player who had attained the heights of "name" level to do? Was he to be barred for the rest of his Lord's or Wizard's or Patriarch's life from ever again engaging in adventures appropriate to worthies of lesser stature? The "endgame" then would seem to be character suicide. Absurd! And what of the player whose high-level character dies a final death? Must he be limited to playing a first-level character? What of those "dungeon modules" for sale in the shops? If a player has but one character in the campaign, then he'll need non-campaign characters for those as a routine matter.
In short, even a single player might be expected to have multiple characters pursuing multiple intrigues.
"A good dungeon should have no less than a dozen levels down, with offshoot levels in addition, and new levels under construction so that players will never grow tired of it." Why? What is the point of all that, if, at any given instant, "the party is level X"?
The point is that "the party" was not at all an assumption, much less that all its members should all be level X. The campaign had no "level". The underworld -- and the rest of the milieu as well -- was to accommodate the ongoing activities of a large cast of characters of quite various ambitions and capabilities, from petty thieves to wizards consorting with gods.
