I'm sure you could make death have some kind of consequence to deal with the complaints that would surely come about game balance. Seeing as it would have the same type of teleporting affect as going to jail, it could have a similar drawbacks to that, i.e. lowering skill experience progress or loss of gold. Whatever. But the big thing is that it'd be a nice feature to save people from a lot of frustration, IMO.
So. If anyone knows of such a mod, whether it be a finished one or a WIP, please point me in that direction. If there isn't such a mod and some modder that can figure it out would like to make it, I would be greatly appreciative.