Losing shinies is a penalty to failing in combat, but not a hard-coded one. Mobs do not (generally) take your equipment after death. Players can (and usually do, to varying extents), if they choose to. I don't see it as a death penalty, per se, though leaving gear on your corpse is certainly a potential drawback.

As you know, con loss happens with any death. It's part risk/reward, and part mechanism to permanently kill off characters through violent combat. If you con-die, this yields an eventual reward to your foes: your utter elimination. It's important, since otherwise killing someone just results in their continual resurrection. Eventually, killing someone should mean something, otherwise it's just another frag.

Experience loss happens with mob deaths. I attribute this to an increased risk for "easier" targets (ie, not PC controlled). Easier might be the wrong term, so let's call them "more predictable". You know that every time you fight X, it's going to follow a certain set of behaviors, plus or minus some RNG action. You can find X in location Y every time, it's going to use skills/spells A, B, and C throughout combat, and it will/will not chase you down if you have to break off and rest. Experience penalties also provides a risk/reward mechanism that ties into a common mob-related activity: ranking. High risk/high reward areas can result in a satisfying hour or two of serious experience gain at the risk of an experience setback if things go wrong.

Age death is important from a character cycling standpoint. Think particularly of cabal leadership, tattooed religious followers, etc. Age death forces turnover of even the most invincible characters, and allows different players the chance to achieve. If I'm not mistaken, it also trails far behind con deaths and deletions in terms of ways a character makes his grand exit.

So while "death has consequences" may, on the surface, appear to be unfun (especially when you're presently experiencing said consequences), I'd argue that they actually combine to increase the overall "fun" of the game.

I've always maintained that CF has both a well-balanced PVP system and an exceptionally well-tuned risk/reward system that applies to a variety of play styles. Take a hard look at other games you've played, particularly ones that you've gotten bored with and uninstalled. What was missing?