I think the the gear-damage death penalty would be a good fit for FFXIV.
Maybe 8%, and every time you die while weakened, a multiplier effect is added.
Also, I would make it so that if gear hits the 0% mark, it becomes a generic 'destroyed' item, it loses all bonuses/states and cannot be repaired at all. (eg, destroyed sword, destroyed lance, destroyed helm, etc..)
