All this 'find some way to make the death not count' is kind of slapping a band-aid on a gaping design wound, isn't it? That's the sense I got from PoP 2008. They made all this hype about how they were going step back and completely reassess death in games. And then the game came out, and I was like, "Boy I like how they addressed the problem of death in games by...refusing to...address...death...in...their...game.......???"
So I'll throw my hat in with a suggestion for some kind of staggered impairment mechanic.
Say you're playing through the first level of Generic Third Person Shooter. When your character detects a bullet collision, he flinches out of the way -- seemingly JUST in time. Meanwhile, there's an invisible quasi-HP variable ticking away in the background. If it runs down all the way, eventually he doesn't -- and he takes a bullet in the arm. That's the maximum amount he can get injured in the first level. It prevents him from using two-handed heavy weapons, and it carries through to the next level. Which has its OWN injury for repeat failure, which can stack on top of the first one.
As the game progresses, the injuries accumulate, providing continuous feedback and increasing challenge. What's that? The player's doing really well? Okay, bump the difficulty up to hard mode, and have the villain jumps in between levels to cut one of the player's arms off.
By the end of the game, you've either learned to play well, or your character is a scarred, bleeding, one-arm-broken wreck of an action hero -- or somewhere in between. And if you 'die' at the last boss, you still kill him, but you go out in a blaze of glory (rather than returning home to get the medals, girl, etc).
Challenge need not equal to a brick wall. Consequence does not equate to "you failed" and "do it right this time" is not satisfactory player feedback.
Honestly, I think death really only needs to be there as a vague threat which compels the player toward mastery -- and once you've established that, you have to ask, "How can we incorporate compulsion and consequence at a deeper level, on a longer scale?"
Heavy Rain and Mass Effect 2 are a step in the right direction. Modularized alternate endings, depending on success of specific gameplay objectives throughout.
I'd like to see/design the next logical step: a game where you can 'fail' THE ENTIRE GAME completely and still get a holistic, unbroken, thesis-fulfilling, satisfying gameplay experience -- just not AS much so as you would for playing 'right'.