Yes. The area of model theory you are asking about is known as "Geometric stability theory". This is a very active area of research. The standard reference is the book by Pillay with the same name.
These connections have actually gathered a fair amount of recent attention (a google search will provide you with links to conference webpages and some articles), one of its highlights being Hrushovski's "The Mordell-Lang conjecture for function fields", J. Amer. Math. Soc. 9 (1996), no. 3, 667–690. But, really, most recent work in model theory is in this area. For example, take a look at the list of publications by Scanlon, for many interesting examples of model theoretic ideas leading to number theoretic results.
Actually, connections between model theoretic ideas and algebraic geometry have been around for a while, starting with work of Abraham Robinson, though it is fair to say that their recent sophistication is due to the deep insights of Hrushovski, Pillay, Zilber, and their students and collaborators. (I fear any list of names I give is bound to be embarrassingly incomplete.)
Similarly, model theoretic work on "$o$-minimality" is connected in serious ways with real-algebraic geometry. There have also been some interesting connections between this area and set theory, mostly due to the fact that real-algebraic geometry gives us some insight on the study of rings of continuous functions and their quotients. You may want to look at "Super-real fields. Totally ordered fields with additional structure", London Mathematical Society Monographs. New Series, 14. Oxford Science Publications; The Clarendon Press, Oxford University Press, New York, 1996, by Woodin and Dales.
In a different direction, Talayco, a student of Andreas Blass, studied connections between cohomology and set theory.
For a completely different approach, though perhaps not exactly in the direction you intend, locales and, in general, topos theory, allow a foundational presentation that people feeling more comfortable with category-theoretic ideas may prefer to the set theoretic approach. The usefulness of the framework lies in part in that it gives us a way to study duality theorems (such as the one relating Stone spaces with Boolean algebras) in a unified fashion. See for example, "Stone spaces" by Johnstone or "Natural dualities for the working algebraist" by Clark and Davey.
It is not necessary to write your Ph.D. dissertation as a direct continuation of your masters thesis. I will not write my Ph.D. as such continuation.
You could study more model theory on the side, or you could study more pure logic, or you could expand into another area. Then when the time comes to write your Ph.D. you could make a much better decision. Furthermore, I know several people who were set to solve one problem in their Ph.D. and gave up halfway only to switch to an unrelated problem.
Some universities even support external advising (especially for Ph.D. students) which means that you have a local advisor, and another advisor (often the actual advisor) to work with on your problems. You might also find it easier just to switch universities, if that's a viable option.
Besides that, it is true that it is the easiest thing to just continue your masters research into a Ph.D. dissertation, but the main use of a masters thesis is like "research training wheels" which give you a taste of doing mathematical (or otherwise) research. In the university I did my M.Sc. you are not even expected to do original research or publish papers at the end of your masters. You are only expected to write a thesis which shows that you know, a bit more, how to research a problem in mathematics.
The important thing is to do what you love. Writing a thesis, especially a good one, takes a lot of effort and time. Spending so much energy on something you dislike is not a good advice.
Let me share one experience from my masters degree. I was set to research into axiom of choice related topics, and I actually dragged my advisor into the topic. I came up with most of the questions and problems, and I made him curious about things so we studied together. Certainly if I would stay there for a Ph.D. with him we would continue to study together, even though my advisor's main interest is proper forcing, and order theory.
Best Answer
The exact quote is:
As for my interpretation, I think it's rather clear: model theorists study objects which, are (very much like, or just generalizations of those) in the scope of algebraic geometry when we consider theories of fields or rings (like formulas and equations, definable sets and algebraic varieties, definable groups and algebraic groups, types and ideals), and frequently use methods inspired by or directly generalised from those used in algebraic geometry.
So in a way, model theory extends algebraic geometry beyond the case of fields.
How accurate it is depends on what kind of model theory we are talking about. From my perspective, modern model theory has strong ties to algebraic geometry, but also to other branches of algebra, as well as to analysis (real, complex, functional, Lie groups), descriptive set theory, computer science (though that's closer to finite model theory, which is a rather different animal) and likely quite a few others I've missed.