Say you played in a PVP match you died, but you'd wake up in a medward tent. However typically what if you were dungeon crawling by yourself? I was thinking that if we died in the game on terms that the character totally lost his or her life the game should force us to create another character. However! Once you've created that character you'll be visited by an NPC who'll apologize to you about your loss. That loss will supposedly be a family member, your previous character. He'll give you all your previous possessions and a journal containing all of your progress. So you never have to start over, but it'd give your character a fresh baked start. Like say if you were chased by a PKer or something.
PKing would be cool, because it would give the PKer a fine and bounty. When the fine is collected from the PKer the money will go to the killed player/s evenly. Bounty would be paid to the killer of the PKer. NPC guards should be able to hunt down the PKer like in Skyrim. Also the player can't just kill himself to loose his status. If he's killed environmentally he'll wake up in a prison ward, and jailed. Guards and players have the ability to kill him, and he'll have to recreate with the same penalty as anyone. Guards have the potential to capture alive.
The re-creating character after death seems logical as it'd protect a player from harassment from a specific player.
I still would prefer starting off factionless, and free-roaming. Only till you select a faction can there be bounties or fines collected from your death. At least in my opinion. Anyway this is how I see things.
Now you can't die in a party unless the party whipes! I think that'd be key, and your party needs to pick you up.
I love steep penalties and challenges. It's lame to have crayon and finger painting baby mmorpg logic.