Back in the early days of online games, dying was a pretty big deal. Sometimes it was permanent. (Reportedly. I didn't play online games back then because I was on dial-up, broke, and I hated other people. Two of those problems have since been cured.) Then came Ultima Online. If you died, you had to wander around as a ghost - sometimes for "hours" - looking for someone to revive you while people were free to loot your corpse at will. While not as bad as perma-death, that's still a pretty extreme penalty. Along came Everquest, where you would only lose one item and some experience points, provided you could reach your corpse. With each generation of games the cost of dying has gotten smaller, so that now in World of Warcraft the penalty for death is a two-minute run, and the penalty for being unable to reach your corpse is being unable to fight for ten minutes.
Along the way, die-hard fans have raged against these more lenient penalties, claiming it would make death cheap and meaningless. And yet online games have become steadily more popular, and nobody looks at the death screen and says, "You know, this would be a lot more fun if the game would destroy two days of progress right now." Death still isn't cheap and most players work to avoid it whenever they can. Designers seem to be getting the idea that most people don't like it when the game they're playing stops entertaining them.
It's worth noting that the only real penalty is time. If your character is deleted, then the cost of death is the time you spent on it. If you lose gold (or whatever the in-game currency is) then the cost is how long it takes you to earn it back. If you lose XP, then the cost is the time it will take to regain it. Same for items, travel times, stat losses, and any other in-game penalty - it's all based around charging you time for failure.
There are two types of death penalties: natural, and punitive. A natural loss is something that needs to be done in order to get you back into the game. If you die, it's no good for the game to bring you back to life surrounded by deadly foes where you'll be cut down again. You need to be removed to some safe location. You'll have to hike back to the battle from there, which isn't very fun. But that's a natural loss. A punitive loss is one that the game adds on as a punishment, like taking away an object or levying a fine of XP or gold. A loading screen is a natural penalty. A lingering death animation is a punitive one. Having your buffs cleared is a natural penalty. Having your stats reduced is a punitive one. Obviously the line can get fuzzy in places, but it's clear that some aspects of death are unavoidable and some are added on to punish the player for failure.