Hi. Thought I would chime in. Some things to know about me first, I played 11 for 8 years, as a WHM with reraise/raise/sneak/invis. I hated crafting in that game. In this game, it is opposite. I love, love love, the DoL/DoH jobs and play them exclusively.
/wave
So, that said, here is my 2cents.
First, I do believe there needs to be a penalty to death. However, as many of the arguments stated, doing so at the detriment to casual players (of which I am not) is not exactly fair. Yes, I want to the game to be scary, nerve wracking, and to actually feel like I am ADVENTURING. That is, after all, why I play this game. Likewise, I don't want the penalties to scare my girlfriend from the game - she is the very definition of a casual player, and I like playing with here.
So where is the happy medium? I think, personally, that there can be a lot done to the current system to improve it, make dying something to avoid but not a deterrent to actually playing.
1.) There is no need for an SP/XP loss. Aside from all the arguments against that have been made already, think about this: It was not added to the game from the start. Adding it now would do more harm to the game's already bad reputation and is counterproductive to what SE is trying to do with the game, which is save it from becoming a such a monetary sink that they HAVE to shut it down.
2.) Lets look at death in leve: The penalty for repeated death (not -a- death) should be failure of the leve. Very simply, if you don't get your shit together, you shouldn't get shit for reward. Pardon the language. I think this will be addressed in part with the game optimized for lower party sizes. If the game is balanced for 8 people, or 6, then one person dying is much more noticeable than than with 15 people. More so, two or three people dying, and you have a serious issue. Even if they continued to allow 15 person parties on 8 person leves, and balanced it right with an SP hit, you are now having to make the choice. Learn the job and stop dying to get better SP, or take the SP hit. A proper balancing of party dynamics, size, and mob difficulty is its OWN incentive to keep from dying.
3.) And yet that does not address the issue of solo/duo play, grinding, exploring etc. This can be simply addressed with a multi-faucet approach. First, place a 1 anima cost on returns (0 anima cost if you are out of anima). For casual players this does not hurt them much, but that's the point. You want the casual play to stay casual. For hardcore players constantly on the go, 1 anima is a lot. But more importantly it CAN be managed (I for one, plan my travels carefully enough to the point where I can tele-taxi on my main.) or averted by not dying.
4.) Also allow for the removal of fatigue by the use of Guardian's Favor is a good thing... Especially if you have to choose between running back at full health into your leve so you don't fail it OR... waiting for it to expire after Raise / Re-Raise - thus saving yourself the anima for the return and the guardian's favor. Whether or not Pheonix Down is added is for a whole different topic

Point is, balance this right with the difficulty of leves and you either avoid the death OR have to make a tough choice.
5.) As a crafter, I honestly SHOULD be fearing death. There isn't anything what-so-ever to me dying. It just does. not. matter. People frequently forget that DoL/DoH is a class in this game. Whatever happens regarding death, has to affect us crafters, too. I already manage my anima well; that's because I covet it. Even though I rarely drop below 60 anima, I would HATE loosing 1 anima on death.
6.) Durability hits to gear is a great idea for a penalty. Again, it won't affect the casual players too much. But it will provide a reason to avoid the repeated deaths. Until the repair system is improved, however, it is pointless. As has already been said, there needs to be a tiered system. a 10% loss of your max durability would be worth while if and only if there was a difference between 90% damage and 1% damage. It is very simply. If your gear is "white", it costs what it costs now to repair. If your gear is "yellow" it costs double mats/double gil OR a +1 of the mat. If your gear is red, it should be triple cost in mats / gil OR a +2 mat. IF you let your gear get all the way down to 0 dura, I am all for a x4 cost multiplier for gil / mats, OR a +3 item to do it to full. Hmm. I think I will make this a new thread topic, too. I like that idea. But then, I am a crafter!
So, in summary: 1 anima to return. 10% dura hit (or another % as needed for balance) with tiered repairs. Guardian's Favor to instantly remove weakness (I think I called it fatigue above; my bad). Raise/Reraise to avoid the anima cost. With leves balanced so that a death or two doesn't matter but three or four might, and a one full wipe puts you at serious risk unless you kick ass, and you have your solution!
And that's my 2cents.