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Hmm, in Live Role Play (which is a effectively a huge role play enforced MUD) there is permadeath. One of the unbreakable rules is that dead is dead and gone - you can never be the same again (although you can be raised as unliving that unliving will not be the same person as the living one).
On the other hand though it is hard to die permenantly unless someone is really trying. Virtually everything has some way to heal it and people tend not to wander around alone.
The result is a good balance, you have to be stupid or unlucky to die - but if you do die then you are dead and gone.
Another interesting point is that you gain xp for being there and in character - whether you go out and slay monsters or just hang around in the bards guild and play music.
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