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The main advantage of the typical (RPI) permadeath system - as well as the realism factor - is that it helps avoid stagnation. There is little point in assassinating the king if he's just going to respawn back at the temple and order your execution.
The main disadvantage of the typical (RPI) permadeath system is that most players dislike losing all the time and effort they've put into their character.
Allowing a set number of deaths therefore has the same disadvantages as regular permadeath, but without the advantages; you'll eventually lose all of your hard work, but equally you cannot assassinate your clan leader, king, or whoever, and expect to get away with it.
It's called "internal consistency". A mud should be consistent and believable within its own rules of reality. It might not be "realistic" to throw fireballs at someone in real life, but it is within the themes of many muds. Equally, while it may be realistic within some themes to be instantly and automatically reincarnated every time you die, within most it is not. This is also why it is generally undesirable to have the smurf village, the dwarven daycare centre and Mega-City One areas within a roleplaying mud - they are not internally consistent with each other (nor within the themes of most muds). Now you could well say "If you want realism stop playing games and go live life", but the fact is that most roleplayers would find such inconsistency anathema to an immersive roleplaying environment. As such, they're more likely to just leave your game and go find someone else's, which is not the sort of result most mud owners are aiming for.
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