At the end of the Shivering Isles, you are given the title of Madgod of the Shivering Isles and you get a key to the place. You have a staff, you have the outfit, you can even change the weather. The Shivering Isles is YOUR realm, mortal! Wait, I can't say that! You aren't mortal! You're a freaking Daedric Prince! You are an immortal! I think to accurately reflect this, your character shouldn't be able to die once the Shivering Isles is complete. It should be just like how it is in the Lore. Remember the final battle at the Temple of the One? A Daedric Prince physically steps foot in Tamriel, and he is killed. Is that the end of him? Nope, he just goes back to Oblivion.(Just to clarify, do the Princes have to go through the Waters of Oblivion like the rest of the Daedra?) So, why are you the exception? I think a balanced solution is that when you are killed, you are teleported to New Sheoth Palace and maybe gain a curse called "Rebirth Fatigue" where fatigue and most skills are lowered for a few days? I think this would be a cool concept. I mean, death isn't huge in Oblivion regardless, most people save constantly. This is more of a lore thing than something that could break the game. Although for certain quests this wouldn't really work, so if you are on a quest that locks the door behind you or is critical to the story, should be the exception for obvious reasons.
I know it won't be implemented, but it's something I'd still like to mention. IF anything, it'd be more inconvenient since you'd have to fast travel to the Door to Cyrodiil and get out and fast travel to where you were.
What's the concensus on this?