But, if you were instead to lose** favor with a House or the Coin Lords or the Silver Flame or [fill in the blank] as a result of your death, and had to make it back up by rehashing a quest ... they get a win/win out of it. There is a penalty to the player for deaths (you wouldn't go /death ing around town for example) and you have to rerun a quest to make up for your tomfoolery. Thus, it doesn't inhibit you from playing a game while you only wait around for those you know and trust to play. Even better, why rehash a quest? Make it a solo run where you have to regain the favor of said house by slaying a vile (random & level appropriate, of course) beast that is wreaking havoc upon their buildings/lands/coffers ... whatever.
The xp penalty works when you aren't level cap'd. If there were more levels, and more content, this might be a non-issue. My cap'd characters are already penalized when they run new content without increasing levels. Their potential for xp goes down each time. Losing additional money & equipment further penalizes them. So, even if you take away the xp penalty, a cap'd character is limiting their potential xp each and every time they run a new quest. ... Now, I'm rambling!
** When I say lose favor, you don't really lose it ... you have to regain it. But, droping below 1750 wouldn't make you lose your tome. (And, then get you another after you regain.) It might make you lose your pendant of time, or buffs, or returning arrows though.