Personally I agree with the OP and Keith. The idea need to be tweak but it's not bad. I'd see something like a 5%sp/xp surplus penalty when you die, timer of 30min, not further penalty if you die again and a npc at the crystal that can remove it for a fee(the fee depending of your rank).
While I do appreciate the "tension" that death penalty bring, that's not why i want it. Like I said in another topic it's because without a urge to survive, a lot of game mechanic aren't use as intended or at all.
Just from the current mechanic the 3 that come to mind are food, healing items and armor ranks.
Currently almost nobody is using food or healing items. Why would they? If death isn't something bad, there's no reason to pay for a 1 time use item that will save your life once. Just take the 3 mins weakness.
Same thing for the armors, despite armors having a favored rank, a lot of people are skipping mid rank armors to go directly at the higher ones. The stats penalty was suppose to be there to dissuade that but since dying don't matter, the stat penalty don't matter either.