I believe you are right, and, somehow, I believe too that Xsyon will address the death penalty and alignment topics once the more pressing technical issues with the server are dealt with.
I believe a stinging death penalty is needed for this game and a penalty to stats and skills sounds good to me. And with that I mean an actual loss of stat or skill points, thus no temporary one. Additionally, death could cause that a player "cannot remember" a crafting recipe or two after the death experience.
I envision a system that - while FFA PvP is possible - causes that FFA PvP seldom is chosen as the most appropriate action by the players, just because the penalty for death is hurting so much.
Also, just imagine a death penalty that is dynamic, possibly after religion is introduced into the game. Here the death penalty could be a light to moderate one when, for example, there have been less than 5 player-killings server-wide in the last 24 hours, climbing to a very steep death penalty if we had more than 100 player-killings during the last 24 hours or so.