I'm sure that this has been stated before; but there is a balance to be struck here...and from the sound of it, the balance has tipped a bit too far in one direction.
If the penalty for death is too severe or the toll not relatively easy to recover from, then you are going to discourage combat - in all forms; from PvP to exploring. It is understood that the idea is to curb exploitation, but also understand the nature of the problem you are attempting to solve. In principle, it is impossible. No matter how ridiculously over the top you make a penalty for dying; someone will find some means to exploit it. Continuing too far down the path will only result in a userbase that is unwilling to take any significant risk in anything.
There is no serious merit to roleplaying everyday life. There is nothing unique or interesting or innovative in that. If you want a story to be remotely interesting, there needs to be conflict. Not all conflict ends in fighting, but it is going to seem odd when situations take a seriously odd turn toward the obscure and awkward when disputes that would otherwise come to blows don't because neither side wants to deal with an hour-long tedious respawn.
It isn't really roleplaying when you don't have others to interact with. So ask the question: What is the difference between this; and simply restricting access to playing a character outright for hours on end; only to have the character return under the tedium of being essentially crippled?
A bit much, in my opinion, toward an end that is accomplished via easier means. It's sometimes nice to think that the system is great because no other game impliments it...but sometimes it is good to look back and ask why that is.
