It is possible, but it would lag a lot unless used in a small map with a relatively low amount of cliffs and obstructions. The method used is to have an invisible cube model that is stacked up as layers all around the perimeter of a rect. For each obstruction, you have to make a layer surrounding each side. You may need to use multiple rects if your map is too big, unless you set the farZ to enough.
Saw792 made a system that uses that method.
http://www.thehelper.net/forums/showthread.php/106743-Camera-System-with-Mouse-Detection
However, it does not compile currently because of patch 1.24. Also, it isn't perfect mouse detection, as it can only check the general area of your mouse.
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That is the hard method. The other method suggested was to use a mod known as "Reinventing the Craft". It has mouse support, which makes it really easy to make an fps system (it only took me like a day after its release to code one), but sadly it does not support multiplayer (unless they all have RtC, and even then I remember encountering some problems) and is a bit buggy. It also doesn't work on the latest patches, as far as I know, but I haven't checked recently.
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Overall, it is a big hassle, but still possible.
For multiplayer, it is probably not the best decision, but maybe for smaller maps, especially with single player, it could work.
