sounds like it would be too dificult to balance. what constiutes which gear would break upon death? is that AF armor you worked 4 months for just going to break if you die, requring a ton of gil to repair?
just saying that a nice xp loss penalty is dificult to beat. even if the game did not change at all and they add xp loss upon dying, it would transform the battle system. players would act as teams from here on out to ensure they don't die, or die recklessely.