That idea with draining life is not too much different from what already exists e.g. in Ryzom, and if you leave out the fact that Ryzom was a total economical failure (several times), it worked quite well. It was even harsher in Ryzom.
Spells (or any action, for that matter) need to be balanced with a "counterweight". That's usually mana for magic and stamina for melee. However, unless you use spells that are way below your level, you do not have enough counterweights in mana alone to cast a spell (and you cannot possibly cast the highest spells even at maximum level). You have the choice to put in "time" as counterweight, or "hp".
"Time" means your spells take a lot longer, and during cast time you will be hit automatically by all but the lowest creatures and your spell fails. In other words, you're dead. So "hp" is the only working solution. Which means, of course, you can fire the biggest badass spells, but you are also much easier to kill.
It's certainly a risk tradeoff, but it isn't necessarily creating frustration, it may very well add to challenge (and very strongly encourages team playing).