To all the people who don't believe in death penalty. The winning strat that was over-used for the CoP mission with Ultima and Omega are the perfect example of why a death penalty is needed. I knew so many people making a fortune and totally abusing the system by zombie nuking the weapons to win. 5 blms and a tourist would basically be use RR2 item, everyone nuke, wipe, reraise, reset RR2, and nuke, wipe, rinse and repeat until mob was dead. It was a sad and pathetic exploit to basically do what it takes to win, and seriously broke the whole purpose of the fight.
First of all, there are other ways to prevent unintended or abusive strategies.
Secondly, and more importantly, if a fight is challenging enough that people are resorting to strategies where they intentionally die, it is because the fight is challenging enough that they are going to die anyway-- so they may as well die to win. In this case, a death penalty doesn't deter dying, because people grow to expect it. e.g., people in FFXI have always expected that they would die during certain fights, because it was inevitable if not essential to victory. At that point, it no longer becomes an effective deterrent. Instead it simply becomes a price you pay for victory, and a source of frustration.
Let me give you a real life example of this principle-- I park illegally almost every day, even though I don't like getting tickets. However, if I pay the meter (which I have to walk across the lot to do), I'm still going out of my way to pay to park. I know that either way, I'm going to be paying, and that there will be enough days that I don't get ticketed that the cost is offset overall. In this case the deterrent penalty (a ticket) no longer serves to prevent my reckless parking habits (as with dying) because I know that in the end the cost to myself is not significantly greater, and it's actually quite a bit more convenient for me to pay tickets than to pay the meter every day, just like it's sometimes easier to pay a death penalty and use a winning strategy to get what you want (or park your car) than to do the fight "honestly" and hope you die as little as possible. Not a perfect analogy, but demonstrates the principle anyway.
This is actually a well-studied area of psychology which often finds that penalties do not deter the behavior they intend to. Instead, people consider the penalty merely a cost of doing business, they accept it, and work around it.
If there were a consequence to "not winning," I would agree with you, but 99% of the time there isn't. And, of course, in a group activity, dying doesn't even necessarily mean that you don't win. If you're rotating two tanks, for example, then a tank dying can have literally no consequence. A DD dying is even less consequential than a tank: "Oh, Bill died. I guess we'll kill it slightly more slowly while he gets back up."
This brings up a good point though-- that people tend to resent being penalized individually when they are working for their group. In the first place, a fight where a party member's death only means "killing it more slowly," the fight is probably not challenging enough, but at least if everyone is killing more slowly, everyone is slowed down as a team. Losing, afterall, ALWAYS ultimately incarnates as a time sink. So yes, killing more slowly is as legitimate a penalty as forcing someone to go out and grind for more xp/money. It's just not as lame and makes a lot more sense.
Having a (reasonable) death penalty in an MMO is like a horror game actually being scary. When the risk of death goes up, you'll start feeling nervous and if you die, you might even get mad, especially if you died because of a stupid, completely avoidable, mistake. I can relate to that and I don't like being annoyed, either, however, if you take the death penalty away, if you strip the horror from a horror game, you're left with nothing but a shell. If the horror game isn't scary, why are you playing it? Didn't you get into it because you wanted to be scared?
The point I think you're missing here is that plenty of successful horror games don't use harsh penalties to achieve this sense of anxiety. Death penalties are not (necessarily) the cause of this feeling-- rather there are many other factors at play here.