Here is the problem with the death penalty. If I have only one, lets say at the entity, then people could just sign off and wait for a reset to avoid it. If I have it only on the re-spawn button then a DM could not res someone who is in the death world... Though I suppose they could just not re-spawn during events and wait for a res if one is forthcoming..
Ok here is what I will do:
There will only be one death penalty, at re-spawn (10%, no level loss possible) until level 20. From Level 20 to 23 an second death penalty will be added (at the entity) that will cause level loss. This way if a high level dies (usually happens in pvp at that level) then they will not loose a level if they decide to not play until a reset, which is between one and three days (and may be as long as a week when I get the re-spawns for crafting working correctly. This way you will have one of two penalties at high level:
1. xp loss that can cause level loss
or
2. not playing again for 1 to 3 days
That way death will still be something to fear at high levels =)