Games rely on clear and constant feedback: you either win or you lose. This direct feedback is important to make games fun.
However, when players want to immerse themselves into a simulation, they don't want to get clear and constant feedback on what works and what does not. They don't want to win and lose all the time. They just want to feel as if they were indeed part of the simulation - and always win. Simulations do not rely on clear feedback! It's mostly irrelevant for them.
Have a look at this Call of Duty video. The player does the entire mission at hardest difficulty without shooting one shot!
Is this a great game? No. It's a terrible game. But it is a great simulation! I am actually immersed when I watch this! In one way I agree with the author of the video - on the other hand I think he didn't understand that he doesn't actually play a game! He plays a simulation.
The funny thing is that while MMORPGs in recent years have ignored the simulation and turned into 'just a game', games like Call of Duty have turned into great simulations and stopped being games!
What does this mean for death penalties? A great simulation just doesn't let you die. Just like Kring commented in a recent thread.
However, the simulation must still make you fear death! And that's why great simulations can have harsh death penalties: You are just not expected to die in the first place! You are only supposed to fear death - just like in real life or any movie.
While great simulations are easy and have harsh death penalties, great games are difficult, but have trivial death penalties. No other combinations works!