While reading over the forums I've seen discussions about death penalty and what people think it should be (Do mind, I have not read through all the posts and threads), and I have a different suggestion for discussion: Survival rewards. Why I suggest Survival rewards is because I feel death penalties add nothing fun to the game, while a system where you get more and more benefits for surviving better during quests, events and so on, is better for adding fun to the game (Here I'm thinking along the lines of the reward circuitry in the brain getting triggered for you doing good in the game by giving nominal rewards). So I just want to list a few of the ideas I have of the top of my head:

• Surviving encounters give a minor exp % bonus, surviving chained encounters (Less than 5-20 sec pauses between enemies) will make it possible to keep sustaining and expanding on the % bonus. With this I can see a problem with bots which probably can make optimized paths for farming exp and so on, but that problem I think almost any MMO has, and a good detection system to find bots is usually what will stop these kind of issues.
  
• Possibly the same as above just with cash.
  
• There could be items only gain-able by surviving for a good amount of time, that could be used at a vendor for gear, fun items and so on.

Now these were just a few possible ideas that popped off at the top of my mind, but I think you get the idea behind it, to reward people for doing good (FUN) rather then penalize them for doing bad (I actually like that myself, but I'd rather have something promoting fun if a game is not going for the "IM SUPERDUPER hardcoe, YOU WILL TREMBLE IN YOUR PANTS AS YOU TRY TO SURVIVE!").

Edit: Btw been on the forums for years, I guess just as a lurker for the most of the time.

I disagree. If death delivers a penalty to the player, then survival is a reward in itself.
it also makes things more challenging

If you just respawn every time you die without having any penalty that could bug or hamper you you would probably not care much about dying.
If you run the risk of not getting a share of the loot when you die, or if you lose/damage your belongings you will be more cautious

I do believe players should not really die. I believe they should "wake up" in a field hospital, or an allied camp/fortress/city with the message that you were found on the brink of death and that you were healed and transported to that particular place. As such, it should be normal that any equipment you have not lost, is damaged and requires repair (either you do it yourself, or you pay to have it repaired)

I don't disagree with rewarding players for staying alive, I like Vandal's thought as well. I wouldn't be opposed to either or both systems added in.