Re: About "Death" in D3.
A good death penalty is something that is punishing, but does not take you out of the action imo. While I play HC so this is kinda moot for me, I would say the D2 / WoW death penalty, loss of some money and maybe some exp + a run to your corpse is too small (though in wow it's often hard to avoid dying in many situations.)
I personally like how Mythos did it, but I would propose something more harsh. For those who didn't play mythos, the idea was that your chance to find items was reduced for some amount of time.
I think an ideal death penalty would be to make say, the next say, 20-50 enemies not drop any items (but still drop health globes). Another idea would be that every time you die you get -10% chance of finding items (stacking) for some amount of time (the timer should only countdown when you are in game, discouraging just logging off)
What this does is it doesn't interrupt your gameplay. It doesn't straight up punish you by taking away stuff you have already earned, but it makes it so that your next few minutes will not be profitable. In a game like D3, that is heavily item focused, this is likely to be seen as a pretty harsh penalty.
IMO that is the best type of death penalty, something which does not take anything away, which doesn't make the game harder, but which is still a deterrent to simply throwing yourself at the enemies constantly.