Recent Wizardry MMO announcement (which I frankly think will turn out to be vaporware) sparkled my interest in permadeath aspect. I personally never played MMO with it , but after brief google-fu apparently EQ had an experimental ruleset server they used for a contest. It was called Discord.
The whole thing was apparently infested with hacks and given overall EQ design it never looked like it would last, but alas some really interesting things happened there. All kind of creative PKing, underhanded play , backstabbing and general mayhem went there.
To get some snippets of experience read :
If I had a mmo with flexible ruleset I would try maintain hardcore permadeath ruleset server. Just to see the dynamics and serve as honey pot for hackers. Of course it would had big bold red letters and 5 warning dialogue boxes to get trough on top of requirment of having a veteran character on more mellow ruleset server so newbies don't roll on it and have bad experience :)
Maybe tweaked for more lenient XP curves and such and certainly a lot of resources invested in anti-hacking. When stakes are high people go some insane length to meta-game , sometimes with non gaming methods at all.
Other example of high stakes play are present in EvE -with its hardcore espionage and serious RL money investment (check Goon's spymaster and CEO column if you are interested in some great insights )
I frankly expect long term development would turn out to be the same -a brief period of anarchy replaced by thugs and robber barons who later become government. Same thing happened in all hardcore PvP servers (AC:DT, Zeks , EvE).And in real life. Humans organize themselves into orderly sheep governed by wolves. It is pretty fun though with constant feuds and rivalry - a spice which is missing from real life (moderated by governments which are too big now)