Perma-Death is way too harsh, IMO. There are so many things that can happen to your character, regardless of what you do, regardless of your skill as a player. What if some idjit trains a camp full of angry orcs on your lap? What if you lose connection or suffer a bad lag spike in the middle of a tough fight and get killed because of that (happened to me several times in other MMORPGs)? Losing a character to those things would most certainly anger me more than any break in immersion due to resurrecting in the closest bind point.
That said, it would be great, if there would be some kind of in-game reasoning behind the resurrection of PCs. Be that divine favors or what have you, something.
One thing I've thought would be cool, would be a sort of "afterlife dimension" where you would end up after character death (spirit plane, if you will). Once there, you'd have to get out of there somehow. That could involve fighting (break out of hell, FTW!) or doing some quests for the gods (e.g. accepting to further said god's "business" on the mortal plane or whatever - in effect, accepting a special quest that you must complete before dying again, or you'd be in serious trouble).
Urk! I have to go (at work now). Will complete this post at a later date...