Harsh death penalties suck but...
A lot of ex EQ players will have clear, strong memories of the buzz you could get from things like surviving your first Qeynos-Freeport run. The death penalty in EQ was harsh and was the source of much grief but at the same time without that kind of harsh penalty you don't get the big rush of pleasure when you survive a close fight at the bottom of a dungeon where you really don't want to die. So by taking away the lows of a severe death penalty you also take away the highs you can get when you *just* avoid it.
So in my ideal game there'd be an extreme death penalty. In my ideal game there'd be perma-death, except...
in a normal game perma-death would suck 99% of the time and only be really cool 1% of the time i.e when you avoided it or when you died but in a cool way i.e being rearguard for the rest of your group to escape.
It would suck because too much of the time you'd die in stupid ways e.g lag deaths, disconnections, the doorbell rings and while you're away the level 4 psycho-rabbit gnaws you to death one hitpoint at a time.
So if you still want a perma-death game (which I do) then the game has to be designed around it.
Some players, almost certainly the vast majority, would absolutely hate perma-death so games with it would need to be designed around being able to avoid dying by cautious play. Games with low penalties can have fights that take 12 wipes to figure out but games with PD need to have lots of "run!!!!!" options built in.
I think even that is probably not enough. My current thought is there has to be a choice. There has to be decision to risk perma-death. Also this can't be a one-off decision at character creation there needs to be a decision each time. Otherwise you could have situations where a player (me for example) chose perma-death at creation but then one day they're having bad lag spikes but it's the weekend and they're craving finishing some quest and so they can't wait and so they die from lag. No fun.
My current idea is....
Base the game around the idea of hubs and the risk of perma-death being based on your distance from the nearest friendly hub. So your starter town would be your first hub, the place you're bound with no chance of perma-death there at all. The risk of perma-death would go up with each zone further away from your hub. The adjacent zones would also be safe from PD -- so your race's version of Qeynos Hills or Northshire would be safe too. There'd be a death penalty (still quite a harsh one in my ideal game) but no chance perma-death.
I'd have some kind of point score system where each overland zone away from a friendly base you were would add one point to the risk and going into a dungeon would be two points so for example going into a dungeon two zones away from your base would be a risk of 4 points. The chance of PD would come when you went above a certain number. So basically you'd never *have* to risk perma-death. You could always play within the safe range.
(Also there could be ways of reducing the point score e.g grouping. The numbers of ppl you were grouped with could subtract points maybe.)
So there could be a human city and a bunch of zones away a dwarf city. At game start the two races are neutral. A human player could safely travel east a couple of zones, safe as in no PD if they die, but to reach the dwarf place they'd have to cross a zone that pushed the PD points over the threshold. You wouldn't have to do it. But some players could accept diplomacy type quests to the dwarf city. They'd risk the PD and get the buzz (and a nice reward) for the risk.
If you were bound at a friendly hub the safe range would be higher than if it was neutral. So the human player could bind at the dwarf city and do quests that raised dwarf faction. Eventually they'd get friendly or whatever and then the journey would become safe *for them* because they had a friendly hub at each end of the journey. If enough players did the diplo quests then the dwarves and humans make an alliance and the journey becomes non-PD for all the human and dwarf players.
I'd also have PD for certain heroic and epic quests. The very last fight you'd have to risk PD. I'd make all the very best gear in the game like that. You wouldn't have to do it but the bragging rights would be cool.
ps The idea behind the system is that if you die in the game you don't really die. You were just badly wounded but managed to get back to base somehow or you were found wounded by a trader and he brought you back on his wagon. So the closer you are to a base the more likely that is. That's why there'd be no corpse run. You'd respawn back at base badly wounded and gear smashed up as if you'd been dragged back unconscious somehow.
pps Some mobs could have a higher chance of PD and others less. For example, mobs that would eat you might add a point to your PD score. Mobs that wouldn't neccessarily care about killing you might subtract a point. For example, if you died to bandits in a PD zone you might not end up perma-dead, instead they'd strip all your gear and you'd respawn back at your hub. For a lot of players that might be even worse :p
In a case like that you could have the bandits put all the player's gear in a chest and sell onje piece per game day so the player has a chance of getting it back.
ppps Another option could be if you had a PD death fighting dark elf slavers you'd end up in a slave pit in their city with a chance of escape.
pppps As I'd want the option of factional PvP (with no level restrictions) in my perfect MMORPG this is also how I'd stop high levels of one faction griefing low levels of another faction. I'd make it so being in the home city of an enemy faction was automatic PD if you got killed.