I would deepen the thrill of accomplishment another way. Instead of making penalties harsher -- and I've written before on that subject -- make challenges more difficult. And make some so difficult that those victories are not inevitable.
I'm not against player setbacks. In fact, I wrote another article about getting players to accept setbacks. Of particular importance is the section on power:
....The other ingredient, keeping the gameplay fun despite the loss, is more difficult, largely because of an inherent importance of optimization in current MMO models. In the player's eyes, it's not the character's circumstances which have been reduced; it's the character. If the player's character is merely a medium of power, then the loss of power is a loss of identity. The character is diminished, rather than the same character having to approach challenges in a different way.
Think about running out of ammo for your favorite gun in Halo, Goldeneye or some other first-person shooter. You probably cursed your luck and thought about how much more difficult the gameplay was going to be without that weapon. Maybe you were even asking yourself how long you'd have to fight with an inferior weapon before regaining your prized instrument of destruction. But you didn't turn off the console. Why? Because the weapon was just something your character was using...it was not representative of your character. Bond loves his PP7, but he's still James Bond without it. The Master Chief is equally the Master Chief with an assault rifle, pistol or needler.
Whether or not the penalties for failure in combat should be more severe than merely respawning depends largely on other systems in a specific game, as demonstrated above. There are also many penalty systems, like this, which haven't been explored deeply.
In other words, the question "Should a game/MMO have penalties for failure beyond death?" is not a simple yes/no question. But, generally speaking, I still believe in two basic principles: (1) players should experience low moments as well as high moments; (2) the main penalty for failure should be a player's disappointment in him or her self, rather than a judgment made on the player by the game.