Death Penalties are an outdated feature of MMO's, which is why most modern MMOs are doing away with them. No death penalty I have ever been hit with has made the game feel more realistic. It hasn't ever given me a better sense of danger or immersed me any more than a game without one. I hate dying period, penalty or not.

I don't think the majority of people feel anything more than annoyance at SP/XP loss. Sense and urgency come from Good Storytelling, Challenging Monsters and the proper music.

This game is suppose to be designed to accommodate casual, medium and hardcore game styles. Adding in a death penalty will severely hinder the casual base. Casual Player X logs into game, has 30 minutes to play. Goes out and kills some monsters, has a bit of bad luck and then loses all of the SP he just made and logs, essentially making no progress, possibly losing progress withing 'your' proposed system.

Not to mention the wide range of things that are out of the players control.
Server Side Lag
ISP Hiccups
Random CTDs
Jerks causing trains
etc.

Maybe they can add in an optional death penalty so you can feel your sense of urgency. I bet the larger % of people who want a stronger DP would not even toggle the optional penalty on.