AS : I'm french and this is my first post here on the escapist. If i do something wrong, or if you just can't understand what i'm babbling... just let me know.
Though i've been reading the Escapist for quite some time, i've never felt the need to create an account and participate... until now.
MMO with permadeath servers already exists. I'm playing on one right now, it's an official server created by the devs, and though there have been problems with it, it works fine. It seems many people here doubt that this sort of gameplay could even be possible, but the facts are there - just read.
It's a tactical MMORPG, that you may not know about (it's a french game from the beginning, but there are several foreign servers by now), called Dofus. The rules of the so-called "Heroic" server are simple : x3 rates, loser's stuff, gold and 10% of XP are split equally between his killers (wether they are monsters or players). The XP amount raises to 25% if he's a PK.
In this game, when a battle starts, it has to be fought until total extermination of either side (no fleeing, no external intervention). Attacking people is very easy and possible everywhere, except in warp maps and in newbie territory (which is very small, and worth nothing for leveling). The levelcap is 200 and it's VERY long to reach, even with these rates.
Despite all that, and after several nasty bug-abuse cheating stories from a famous PK guild, the server is still popular, and the devs manage to earn money from it. The server's population is generally much more mature and, well, hardcore, than other server's and i managed to get one character to level 145 without dying. Just by playing careful with a small bunch of friends (not in a big guild or anything).
With all these dangerous points (no fleeing from a battle, instant combat engagement anywhere from anyone, long way until toplevel and so on), the game still manages to work. In a standart MMO, it couldn't possibly be worse, could it ?
I've read seomewhere that nobody was going, in an MMO, to form up anti-PK teams. Well the fact is - people do care. They're slow, they're late, and they won't resurrect you (there is no known way to resurrect a player so far), but the main exchange city was, at one point of the server's history, took over by PKs. And by "took over" I mean that they owned the f-ing place, nobody could take a step anymore without being ganked, even using the city's miniwarps.
Guess what happened - now the PKs stay at home. They annoyed so many people so much that by now, when a gank starts in that city, a bunch of specialized PVP fighters show up from nowhere and, most of the time, the PKs won't survive the fight.
There are other mechanics that will appear by themselves - people argue that they keep dying in MMO, but it's simply because dying has almost no consequence (omigod, i'm going to earn 0,001% less XP for 2 minutes, how unfortunate !). If you don't want to see some ganker wearing your stuff, you'll just play in safer zones (and run whenever anyone you don't know shows up), and/or play with a solid team, like by joining a guild. Of course there will still be traitors, spies, and stuff, but it makes the game all the more fun. And, you know, realistic.
And for the last concern of "toplevel players will be an unkillable team"... well for starters, they're not a team, and that's the point. If they're toplevel, they have lots and lots of XP and stuff, and that makes them a prey as much as a hunter. On the server i mentionned before, 200-level tend to stay near the warps and just talk peacefully. Sometimes they do stuff (dungeons, etc...) with their guilds. And sometimes, we learn that one famous player got jumped by a bunch of near-but-not-quite toplevel players as he finished a bossfight, and killed, with or without his guildmates (depending on how trustworthy they were). Just like everyone else, except there's less of them and we talk about them more.
All that to say - yes, it can be cool. And yes, it can work. It's not a theory, it's a fact.