Item loot is a HUGE penalty for dying - keep in mind some items on blue have a market value of over 200k, so if you lose your BCG or donal's BP when you die (possibly to a bug that didn't exist in classic), you're losing hundreds of thousands of plat just for participating in pvp. I think item loot is fun, but I also think perma death is fun, and obviously you can't have a healthy server in the long-term with such a harsh punishment for losing in pvp. It will just cause people to horde exploits more than they already have. Theoretically someone could kill someone with macroquest, transfer any valuable item before they get banned to a friend, and still get to keep their spoils. It's not like the staff has the time to police every little item transaction from someone who's been banned, and it's not like you would even know if a person got banned for MQ, so you couldn't ask them to investigate. A less extreme situation might be if someone stacks resists or stats so that they have 300+ in every resist due to an exploit, or if someone has the bug where they see you in a zone but you don't see them, or if they're speed-bugged so that they move twice as fast (something that happened to me the last time I logged in). If players figure out how to consistently use these exploits, and you have harsh punishments for pvp like item loot, you can expect the server to fail. Maybe if the server had more staff to police every little pvp encounter to make sure it was fair and no one cheated, then item loot would work, but I don't see that ever happening and I don't even think we'd want that.
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Project 1999 (PvE):
Giegue Nessithurtsithurts, 60 Bard <Divinity>
Starman Deluxe, 24 Enchanter
Lardna Minch, 18 Warrior
Project 1999 (PvP):
[50 (sometimes 49) Bard] Wolfram Alpha (Half Elf) ZONE: oasis
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