Just certain NPCs you're able/not able to interact with and you can't send any mail or access your retainers. But otherwise, you can still do fates/gathering in NG+ mode.
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I never liked this music. It makes me remember the forced "live is suffering" theme and "scions sacrifice" just to revive them 2 minutes later and happy ending for everybody.
I know it's a bit of a necro, but since it's back, I'd add this:
If they wanted to do the thing they did in Ultima Thule (Scions "die" but we know for a fact there is a mean to bring them back), that should have been the entire expansion itself. Their sacrifice, and our finding the means to bring them back over an entire expansion. Or, alternatively, the entire 6.X series. Long enough to feel the loss, and long enough to make their return feel earned.