Epic Fail: Fable 2-- You are knocked unconcious and in a couple seconds you get back up, except your pretty little face has a scar that you can get rid of thanks to DLC content.
I think there should be consequences to death, but not enough consequences to ruin a years worth of work gathering goodies. I want people to have to plan what they do ahead of time. For example, if you are getting ready for a quest and you know that if you die, you loose all of your stuff, are you going to bring all of your strongest weapons, or will bring just a few incase you lose them?
What do you want to happen when you die?