From Hellgatewiki.com

Pre Launch Article
This article contains information that is old, or outdated, but saved for future reference, and a historical overview of Hellgate: London through the course of development of the game. These articles are NOT meant to be updated any further. You can find more articles from before launch here.

Death and penalties for dying are a key feature in all RPGs. Death has to have some price, or players will play recklessly and lose the fun of the game. Too steep a penalty can turn play into a cautious crawl since it's better to go slow than die and lose hours or days of progress. The Hellgate Team tries to find a happy middle, and they're aided in that effort by the inclusion of a "hardcore" mode in Hellgate: London. When you create a hardcore character, you're making a commitment, since when you die, you stay that way. No character resurrection for the hardcore; just memories and salty tears.

Death Penalties

During the early years of Hellgate: London's development, death penalties were not in the game. There was some experimentation in-house at Flagship, but come game shows, the penalties were gone. At E3 in May 2006 and the Tokyo Game Show in September 2006, when your character died a player merely hit the spacebar and restarted, fully-equipped, at the nearest spawn point. (Generally on top of the portal or stairway they'd taken up from a subway station to enter the level in which they died.)

This means nothing for the final game though, since most people at game shows are playing for just a few minutes, and not making wise strategic choices. In game show builds the monsters are made weaker and the starting weapons are boosted, so new players can have fun at once. Onerous death penalties are obviously ruled out in that situation.

What's the Hellgate Team thinking in their internal testing, though?

"Our death penalty isn’t set, but there are a LOT of people here who aren’t into making it horribly punitive. I have always believed that when you die you should be thinking, “If I would have done that just a little differently I could have won that fight! I have to get back there and try it right now!” Many online RPGs have such severe death penalties that, when you die, you just want to turn the computer off and go curl up in the corner of your room. We don’t like making our player’s lives miserable, so I don’t anticipate our death penalty being very harsh while at the same time, it won’t feel meaningless. Again, this is something that will undergo a lot of tweaking – especially when we get into beta testing."
--Bill Roper, February 2006

A bit more info was revealed later in 2006.

A more important decision for them right now is to decide on how much of a death penalty to incorporate into the game. One option they’ve been tossing around is afflicting the character with some sort of resurrection sickness that would reduce the experience they gained for a period of time in half. For players who think such a penalty is too easy, though, the game will also feature a “Hardcore” difficulty setting. If a character dies while playing at this difficulty setting, they are gone for good. Adios. Sayonara.
--Game Banshee, E3 2006 wrapup, May 2006

That idea doesn't seem to have made it into the game, and was nowhere to be seen as of May 2007, during community day testing. During 2007 a three-option death screen has been finalized, and you now see this when you perish. A player who dies in a multiplayer game doesn't see it, but his or her death leaves a headstone that other players can mark their passing by, and know where they might resurrect, if they select that option. You see a headstone in this recent screenshot.

Difficulty Levels

Difficulty levels are planned for Hellgate: London, but the only details are general concepts.

"There will be different difficulties. We're still looking at exactly what will change between the settings, but obviously enemies will be tougher and you'll be weaker. I wouldn't expect to fight a great deal more enemies at one time, but to rather fight enemies that are significantly stronger than they were on other settings."
--Ivan Sulic, March 2006

It's expected that death penalties will increase on higher difficulty levels -- that's how it was handled in Diablo II, but that's not yet been confirmed. As of early 2007, mild death penalties exist even on normal difficulty, but as with everything else, this is subject to change.

Hardcore

Hellgate: London will include a Hardcore mode, just as Diablo II did. Hardcore is what it sounds like. You die, you stay dead. No character resurrection at all. More details on the Hardcore page.