XP loss makes absolutely no sense to me. It's basically an incentive to not die when developers don't like the idea of having your character drop all of his gear on death. Couldn't they have come up with anything else?

If you guys want to know the happy medium in death penalties, I'd check out the system The Chronicles of Spellborn uses. Champions Online uses the same concept, but it was completely and utterly butchered in the translation. It's like the "hardcore casuals" version of the death penalty in TCOS, which was already a compromise between hardcore and casual players.