No. It does not make people afraid to die. It makes people play in their underwear!
No. I hate exp loss. If you die you are weakened for 5 min... so make it weakened for 30 min... no exp loss, then people won't want to die.
Personally I find gear damage badly implemented. Gear is too weak. It should last longer. Ironskin is too brief ... it should be a better spell. Gear damage and Ironskin make for a major annoyance. But like someone said, I won't play a game that is too easy.
Final Fantasy has always been a frustrating game, but it makes you proud of every achievement you get. That makes for a fun game.