I've played tabletop roleplaying games for around 20 years, but have never encountered a system which lacked character advancement. The same is the case for computer roleplaying games. In fact I would argue that character advancement is one of the gameplay elements most commonly associated with roleplaying games, and that it is (perhaps ironically) even more strongly associated with CRPGs than roleplaying itself.
Most do - even permadeath, which penalises you by taking away all your points. However others penalise you with time (you have to wait around) or effort (you have to perform some activity to come back to life). In my old mud, the penalty for death was everything except your points - you'd lose your status, social contacts, even your name, but would be able to reinvest all your points into a new character.
I can think of plenty of settings for an RP mud that involve death being commonplace; it's only a flaw in the game design if the mud was specifically intended to have a low death-rate.
Honestly, that sounds like a serious case of abusing your OOC knowledge.
In my tabletop roleplaying games, when a player dies I would never force them to start completely from scratch. But if they tried to use OOC knowledge from their former character, I would put my foot down. Fortunately they're better roleplayers than to try something like that.
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