Permadeath and MMORPGs(The following originated in response to a posting on Lum the Mad's brokentoys.org regarding permadeath as a way of improving online rpgs.)
Surprisingly enough, in the real world (where permadeath appears to have been implemented) people still (a) do interesting things, and (b) live quite a long time. In many paper RPGs permadeath is assumed, and people also (a) do interesting things, and (b) live quite a long time.
Bushido basically implemented the thing your wife suggested about 25 years ago via the concept of karma. Your character dies leaving a certain amount of "karma" -- derived from your character's level of advancement and manner of death (e.g. heroic death or honorable suicide to express a just grievance == huge karma). This lets you build a better character next time.
Actually I think permadeath is a good idea but only one side of the coin. The other side is the tacit model of character development (inherited from D&D but which most RPGs assume) which is "you start as a weeny, run on a treadmill in a desperate effort to make the character you want to play, and then if you're lucky end up as a super powerful atrocity that you don't want to play anymore, probably never having been the character you wanted to play in the first place."
In particular, a typical protagonist from a good story is not incredibly powerful, merely adequately powerful, and usually has a strange smattering of abilities without being a "combat optimized" horror. This is because the character has to make sense as a person with a history (other than "everything he did was with a view to being the ultimate killing machine").
1) Permadeath would be good thing.
2) Start with the character you want to play (more-or-less).
Finally, there's a question of implementing (1) without killing people all the time. After all, action adventures are often dangerous.
The way to do this is to deal with most potentially fatal situations in a non fatal way. E.g. instead of characters fighting (at full capability) until dead (another D&Dism), maybe make severe injury kind of debilitating. Then when someone gets hurt, they're out of the fight, but only if their entire group is wiped out or their opponent would rather finish off an incapacitated enemy than defend him/her-self against a live one, will the character die. Similarly, characters could find themselves imprisoned rather than dead.
Another is to occasionally allow people to come back from the dead via plausible excuses (the way they do in long-running TV shows) but only if the right groundwork is laid. (E.g. getting someone brought back to life might involve a complex quest).
All of this involves throwing off the mental shackles created by D&D.