One the one hand, it seems just natural, that when you die and leave a body, that it is free to loot..
One the other hand, most players will find it too frustrating if the loose their precious stuff (i suppose, that you will always put your best equipment on ^^)
IMHO, a good thing would be, that every player would have some kind of guardian or godfather NPC, which watches his adventures through some kind of magic and teleports him out in the most crictical moment ( when health reaches 0 or char gets unconscious)
Some retired magician in a wheelchair, which sole purpose is to watch the ongoings of the young adventurers in his crystal ball at his old age (so we hope, that grandpa doesnt get his beautynap
Then you would have to pay Grandpa or say, that you are a big hero now and dont need his services again (first time for free or first 5 levels) (btw.. price should depend on personal wealth and/or level)
There should be then some areas, where you are out of reach for your guardian, for the truly adventurous only
So far my thougths ^^
But i guess its already discussed, how the outcome should be and decissions were already made...