How you approach death in your game should be determined by your narrative expectations.
If you want to invest in a character and see the person develop over a long period of time, just take death off the table. If you're going old school, where the expedition takes precedence over the character, death is cathartic and awesome.
For Against the Pagans, I'm bowing to the preferences of my group and doing things new school. Perma-death really isn't on the table unless a player gets sick of a character for whatever reason.
At the same time, I want to preserve a sense of dread and danger in the dungeon. These two goals seem incompatible, but I don't think they are. Actually, I know they're not. Know how I know?
If you've played a horror videogame like Resident Evil or Silent Hill, you know you can die horribly, and also know that doesn't mean you'll have to return the game or start over at level 1 with a different character. And it also doesn't mean that death becomes trivial; it doesn't vitiate serious play.
So let's just do that in tabletop. Here's how I'm going to implement it.
I'm trying to use 4e rules as BTB as possible, even though 4e isn't my preferred system at all. I'm aesthetically in union with Moldvay. Regardless, I don't want to hack all over the place; so I'm working with what WotC gives me.
Death RulesWhen you get to zero HP, we've got two scenarios:
TPKIf you've got a TPK, choose to continue or reload.
If you choose to continue, your character is dead. Sorry! Resurrection may be possible, probably in the form of a quest given to your comrades in a vision.
if you choose to reload, the whole party will restart play at the last save point. Any equipment and experience gained since then is lost; no changes you've made to the environment remain.
To facilitate this, whenever you pick up something in the game, make a mark beside it. In ATP, a cross seems appropriate. If you die before the next save point, erase all the marked items. If you hit a new save point, erase the marks (but not the items themselves).
Furthermore, each character who died loses XP. To see how much XP you lose, see how much XP you need to gain the next level. You lose 10% of that. So, if you need 4000 XP to level, you lose 400 XP on reload. Serious business.
Of course, this necessitates "save points." I'm thinking a save point is just wherever you were when you took an extended rest. Taking an extended rest necessarily means you're in a safe place; so I think it all works out.
Not a TPK
If only a portion of the party "died" (e.g., by failing their death saves), then the "dead" portion isn't really dead but seriously injured. The GM specifies the manner of injury. This isn't cured by cure spells or potions. Extraordinary supernatural effort and/or time will be necessary for injured character to recuperate. The injury results in conceptual limitations (a character with a broken leg may be down o 1 square of movement) and in disadvantage on relevant checks, and we'll say the character grants Combat Advantage all the time too.