Dying in Gaming

There's a series of editorials pondering the need of death in gaming, one in response to the other. The chain starts at Rock Paper Shotgun's RPS Demands: I Want To Live Forever.
However, they're all still a significant distance from my desired goal. I want a character who cannot be harmed. Impervious to bullets. Unbothered by spikes. Swinging blades? They bounce off him or her. Falling from the top of a giant building? A nice, safe thud at the bottom. This person, for whatever narrative reason, simply cannot die.

This of course doesn't mean he or she is otherwise supernatural. A wall is still a wall, and if it cannot be broken, it cannot be broken. An impassable cliff face cannot be mysteriously ascended. Swathes of enemies still impede progress, their blasts of laser fire sending you reeling backward. And, most of all, actions can have consequences. You may not die, but you can still regret.

I interject here for clarity I'm not talking about games where death changes nothing. A regular MMO will bring you back to life with minimal penalty, your pre-death actions still seeing their results in the world (well, to a point, clearly the dragon you killed is probably alive again by now, but that had nothing to do with your demise). But if anything, an MMO kills you far more often, and in far more ways, than most games, lacking the rescuing Quickload. We're talking about a game in which you never, ever die.

This isn't just some peculiar fantasy of mine. There's a purpose behind this challenge. Imagine the difference it would make to a game's design. Imagine the old, reliable themes that would no longer be there to keep a weak scene buoyant. Imagine how inconvenient it would be to the average action game if falling down a hole wasn't a way to kill you.
Scorpia picks it up to ponder Immortality.
But we're trying here to eliminate character death as a feature. It's certainly possible to have other unpleasant things happen to your character. There really are (fates worse than death). But would we want them?

Suppose a fight goes poorly, but instead of dying, your character comes out of it crippled for life. Say, his left arm doesn't function very well any more. Or maybe it's a leg. Yeah, it sure would be a challenge to continue, but would it be fun?

So what could replace the possibility of death? If we consider just the RPG, where does that leave combat? Would there even be any point to having fights, when the player knows that death is impossible? (Hah, foolish dragon! I will slay you with my trusty rusty dagger! You don't have a chance!)
And the buck stops with indie RPG developer Gareth, who asks Who wants to live forever?
To summarize, John wants to play a gamer where your avatar is invulnerable. And Scorpia isn't sure that this is a good idea. Could a game where the challenge of death was removed actually be fun? Seriously? And if so, how would you make it fun and challenging for the player?

To answer the first question, I think that yes, you can make a game without death fun and challenging. Allow me to elaborate.

Firstly, we need to analyze it from a game design point of view. Is it actually death the player is afraid of in RPGs?

No.

It can't be death. The player can't permanently die. A quick whack on reload and WHOOSH, back to life and fighting fit. No one would actually play a game with a real threat of death, anymore than anyone would ride a roller coaster that had a good chance of actually hurling you into the ground at high velocity. So what are players afraid of?