I think stat loss is easier form of punishment to balance.

If multiplayer I like when the player runs out of life, they collapse and start bleeding out. If another player come by, they can resurrect or gank, if they gank, you re-roll but can spec 75% of the stats/attributes you had, but you come back as a descendant of the original character. If your name was bob, now it's bob II, bob III, etc to bob XXXXVII lol if you die a lot.

As mentioned before, what happens with your system if you have 10 dead characters? It might work out, if instead of reviving the character you gained some of it's experience from the corpse, maybe salvage some stuff, but remain with the new character until it dies. Then if you died on 10 diff chars that you'd spent some time on, as you progress in the game you'll get back to them and get a little bonus for going back.

[quote name='Alpha_ProgDes' timestamp='1335645359' post='4935668']
So is it still permadeath if your character dies and can manipulate things from the afterlife? Because technically that's having your cake and eating it too.

If you can manipulate things from the afterlife are you really dead? I remember that in Ultima Online that when your character died you turned into a ghost and about all you could do is talk (assuming the people listening had the "spirit speak" skill toggled so they could understand you) and go through portals.
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Yes as a ghost you had very limited abilities. It was neat that you could toggle being visible for a res, or invisible to stalk people without them knowing, although you did show up if someone used the tracking skill, they could tell you were following them. But other than that you couldn't use any menus or anything.

Interesting thing about players getting punished with perma-loss/death is that general population of casual players whine so much that the devs end up undoing what ever harsh gameplay style they originally set. If 80% of your playerbase is unhappy or feels it's too harsh, the subscription rates go down the crapper. That's why most player-punishment scenarios get muted over time OR until everyone runs around with neon dye tubs and are flying around on purple unicorns...lol

This has been done in a game called i believe dragonrealms, its a character based mud online text game, when you died you would need someone to drag you back to a certain place where healers would rez you, and you would lose some amount of skills. But it was a game where you could advance any skill you like by using it repeatedly. If you did not get rez in a certain time you would rot and your items would appear on the ground for others to take.