Item loss would hurt much more than a little xp loss. Remember the original server bonus was added to compensate for the xp loss on pvp death (basically mimicking the mechanic that Sullon Zek had).
Now if you say it took two hours of grinding to get it back in kunark then maybe the amount could be tweaked but also thats two hours more in a dungeon for yet more in-the-world action. Yet more fighting over better grind spots and grouping with people who still needed to level, new people, whatever. Was the xp loss so big it was a disincentive to pvp no matter what? It should be balanced as a risk you are willing to take for zone or camp control then, not just flushed down the toilet.
We remember what happened instead? "Oh im 60 now so ill just log on for raids" ghost town. And lets just zerg rush the fear portal over and over, who cares how many times I die in pvp.
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