I have read the blog To Live and Die in the River Kingdoms and I am not satisfied with the description of how the death mechanics work. Since discussion was encouraged and it's still early in development I would like to offer my suggestion.
Taking a page from an old MMORPG that most people have never heard of, DragonRealms, at dragonrealms.net which started about the same time Prodigy, Compuserve, and AOL were the premier choices for getting online service. It is a text based game that still runs today. When you died in DragonRealms it was a bit of an adventure in itself. You even had to prepare yourself for death.
When you started the game after creating your character you were put in a type of "tutorial" adventure which would take you from level 1 to level 2. The game was also skill based so you had to raise certain skills to gain a level. At level 1 you were basically immune to death, you could still die but there was no penalty and no item loss. You would just be resurrected at the temple with all your gear and skills.
Towards the end of the "tutorial" or slightly afterwards you are supposed to go visit a temple where there was a puzzle and then you could earn a reward which you would offer to your god. You could offer several sacrifices which in-turn would grant you 1 favor for each sacrifice up to a max amount.
You then went out into the world to make your own way. Sometimes, enemies or players would get the better of you and you would lay dying on the ground. If you were dying you could be dragged to the nearest temple for healing, unless you were lucky enough to have a skilled healer with you. Sometimes you would bleed out before being healed and you would die.
Once you died your spirit would leave your body and you could "haunt" the area around you. Basically, you could whisper to people who were close or moan and make creepy sounds. Most people would ask for someone to please drag their body to the nearest temple where a very talented healer could bind your soul back to your body after healing it of it's wounds. Having your body dragged meant holding onto anything you were wearing. Items you were holding were dropped the instant you fell unconscious. Most kind souls who dragged you would also pick up your sword or bow or whatever else you had. Surprisingly, most people would help you.
There was still a penalty for dying other than losing what you were holding and that was memory. The longer your soul was detached from your body the more "skill" you forgot, up to a max. No worries though, most novice healers were able to keep your memories fresh with a spell. Really talented healers might even be able to help you regain memories that had already faded. A truly powerful healer could target an entire battlefield of allies.
Now you are back at the temple, someone has healed your wounds, refreshed your memories, and is about to bind your soul back to your body. I hope you remembered to make a sacrifice to your god, without that favor you were to walk the Starry Road forever. Everyone would see it in game too, "Mushroom C1oud has walked the Starry Road to never return."
I'm sure you are wondering what happens if no one is around to bring me to the temple for resurrection? Well, you would have to release from your body and if you had a favor would wake up in a very weakened condition in a temple. You would be stripped of everything. However, your items are not gone forever. A grave would appear where you had released and you had a finite amount of time to dig out your belongings, minus what you were holding. Once that time had passed, any passerby could dig up your remains and loot your corpse. Of course, if you had had no favors your belongings would become immediately available to all those around you.
So, what about that really powerful weapon you had worked so hard for and now it is just gone? Well, maybe. You could bind an item to you, it would have a marker on it preventing anyone else from holding it. Very similar to the Threading system in the latest blog. The item would follow you wherever you went.
I have always loved this system. It made death very detrimental yet very much apart of the story and could create an adventure of its own. It reminds me of when I would sit down with friends and play D&D and we had a "resurrection fund" in case someone died so we could bring them back at the temple. I think it adds a lot to how players perceive death, deities, and healer skills.
I think at it's core it is a great system and can be adjusted to fit any game, especially a fantasy setting. All these mechanics would fit within the Pathfinder Online world.
I was hoping that I could create a healer type character, build a temple. I would then sell potions and charge for healing and resurrections. Players would also be able pray to my deity and make sacrifices to obtain favors.