#22 - April 4, 2009, 12:37 a.m.
This would be less of a death penalty and more of a "hardcore", or "suicide" mode. Overall, this ends up being too frustrating for players. In Diablo II -- players who chose to engage in "hardcore" mode often just thought they'd see how far they'd make it, not realizing that they'd get attached to their characters.
Also, it's not very fun to die and lose your character to things like lag, a power outage, server-side issues, etc...