Such a system would be far from cool and would likely appeal to only the hardest of the hardcore.
Death in any game is almost an inevitability. Often, there is no reasonable way in which the user could have avoided their doom. In order to have the system be even remotely fair, the game would have to make it fairly hard to get killed in, which somewhat ruins the point.
Also, I'd point out that MMO's have trended towards a reduced death penalty. In the days of Everquest, dying meant experience loss among other things, often literally undoing hours of work that a player invested into the game. WoW delivered an experience wherein the penalty was fairly light - the player simply takes a small amount of damage to their equipment. Warhammer has the lightest death penalty of all, in the form of a short term minor stat debuff (-10% HP for 15 minutes, stacks up to 5 times, so I guess it can get fairly terrible in a hurry if you keep dying in rapid succession) if killed in PVE and no penalty at all if killed in PVP.
Having a death penalty does help reward certain kinds of play. PVP in Eve gains much of it's excitement because you actually have something at stake. The problem is, since the PVE portion of Eve is so weak, the penalty is actually far more harsh than intended. It takes a careful balance. If there is no penalty for death, you encourage players to experiement to the point of stupidity. If the penalty is too harsh, you force players to be incredibly conservative (You can see this in Eve, in the flavor of the month trend. If a particular tactic or loadout proves particularly effective a huge portion of the player base will adopt it until it is inevitably nerfed).
I do know that Lord of the Rings Online toyed with the idea of perma death, but it was scrapped long before launch (for good reason - making it to level 20 without dying once takes some doing). The idea of converting money into something in the game is one that has been around for awhile (and technically is in place in every subscription based MMO), but one has to be very careful with this. If the special items/features a player gets through real money is significantly better than what they can get through playing the game alone, it leads to a class system and nobody wants that. If the difference is too small, players will not be likely to expend money on the option.
Of all the examples of this system in play (Runescape, Maple Story as the most notable), I think the most interesting is Neveron - an empire building game based in the battletech universe. Though free to play, players can expend real world money to gain items/buildings/cash in game. The catch is, the units purchased with cash can easily be destroyed, the buildings can be captured and money, as always is a transient status point of your empire. The system varies wildly in what is offered. One can have common units or fair amounts of cash for a relative pittance. If players want access to the deadliest unit in the game, they have to throw down 320 USD for the privledge. The system appears to work fairly well as some players were willing to purchase entire companies of these super units, and even I was willing to expend $15 a month to help ensure the growth of my empire.