Now, even though it's off-topic, I want to comment on the death penalties...
With the Final Fantasy franchise, there's ample precedence for resurrection during battle. Raise, Life, Phoenix Downs; all have been intended to allow you to continue playing mid-battle. Obviously with many games, item-based raising was a rare win from enemies, making these items too valuable to toss around indiscriminately. Likewise, raising generally cost a large amount (base or percentage) of the caster's MP, and all but the most powerful restored a player with HP/MP too low to survive long.
However, rather than "breaking" these scenarios, it encouraged you to time your playing to have one character raise and others use healing spells/items to restore the health of the downed character. Promotion of teamwork, good.
I think it's acceptable to utilize a similar scenario for an MMO. Make it difficult/costly to raise during battle; raise the risk of re-death unless other players are standing by to heal the health and/or weakness impact of death. Some amount of "deal with it later" penalty such as extra durability loss. These things encourage you not to die, and encourage players to keep each other alive. At the same time, one player dying doesn't delay things too much, such as some players had during 20-minute runs through dangerous territory to rejoin the group.
I would also suggest that raising out of combat be easier, even going so far as automatically restoring the downed character to life with 1 HP, such that they only need to be healed or rest. This still encourages a delay of sorts (recovering MP or HP), but reduces it to non-stressful levels.
Where I believe a strong consequence for death should remain is with full party death. Just like letting all your characters fall sends you back to your last save, letting all your characters fall should send you back to a previous point. These are our "save points". I will suggest that the party should be sent to the same point - while this may lead to small abuses like death-teleports, having the group stay together outweighs that flaw. Perhaps have it send all the players to the nearest aetheryte crystal to the party. You can even lose all your party progress / winnings since the last time you touched the crystal, just like a save point. Whatever.
Death in a game needs consequences, true. But please remember that the point of a game is to have fun. De-levelling, 20-minute runs, death after death... These things neither encourage nor offer fun. They cause delays, irritation, and inevitably - throwing the controller across the room. Nobody says, "Well, I just dropped a level and can't play with this group anymore. I accept that as fair cost for enjoying the last 20 hours of killing the same mobs." Keep the challenge in the strategy of the fight. That's where the fun is.
I believe Square does understand and appreciate the changes in the MMO culture, particularly our need to balance our lives with a few hours of gameplay per day. The addition of the Blacksmith role, and their comments about this character's place in a party suggest that durability loss will be more rapid than in other games, possibly as much as requiring repair every hour. Players will either have to return to town on a regular basis or bring a blacksmith to keep their gear strong. Again, an example where players who are prepared can avoid delays and irritation.
As for punishment vs. difficulty... I'm going to agree with people who are comparing this to penalties for death, but also with players who are referring to the two as different things.
You're both right.
Losing levels, resurrection weakness, durability loss... All are penalties (negative reinforcement) to encourage you to avoid things which are "bad".
Encounters which become progressively more and more challenging are difficult.
There's a third aspect, positive reinforcement, which is present in rewards: Completing a challenge, a mission, a difficult fight; these things earn you gil, gear, items, and access to new challenges. They make you feel happy, which makes you want to repeat the experience.
I'd welcome any psychology experts to offer the tried-and-true knowledge, but from my limited studies, the strongest and most effective methods will minimize negative reinforcement, maximize positive reinforcement, and balance the difficulty to keep enjoyment and stress equally balanced in relation to the relative challenge.
Example: You start the game. No idea what you're doing, so the game tells you "here's how to move!" Oh, easy. Okay. Let's move around. Now what? "I have a quest! Walk over and talk to that guy!" Okay, that was easy. And I got a dagger! I want to do another quest.
Now you're walking out of town. What will happen? Oh no, a rat attacks! "Press 1 to strike it!" Oh. Well, that's easy. Stabbity stab, rat dead. 5 gil! Let's kill another!
20 rats later... You're bored. What can you do? The one time you tried to attack the next hardest enemy, you got owned. With easy enemies, the stress is gone, the challenge is gone, the impact of the reward is wearing off. With difficult ones, the stress is too high. Now, they could go negative, and if you don't kill a rat within 10 minutes, take away some gil or experience. How will that affect you? "This game sucks, I quit."
So instead, they say, "Go a little further. Those are only a little harder." Again, you feel like you have to be on your toes, but you're not in serious danger as long as you pay attention. Better rewards. You start to think, "if I kill 20 of these, I can kill 20 of something else, and something else, and start making a lot of money".
It's a simple example - you won't be satisfied killing 20 of each thing forever. But it highlights the carrot-on-a-stick example. Keep new rewards just at the limit of your current ability, introduce new challenges (particularly strategically, things that require you to respond in a new way...)
Punishments should be reserved for things you're not allowed to do, such as cheating.
Challenges - and on the note of the person who brought up Warcraft "hard modes", yes - and the correlating rewards are what will bring people in, keep people in, and let people enjoy the game.