I'd say either a permanent gravestone/backpack/whatever or lootable and despawnable corse, but with a long despawn timer. Maybe leave that as an option for server/single config instead of tying it with difficulty?
Remember, this is a network game. And nothing is more frustrating, than when you die in full armour with high end weapons simply because a bear happened to attack you just at the same moment as a really big lag occurred. Lag is over and you lay dead... If, on top of that, you loose all your valuable items, you feel like playing something else. For a while. Or forever.
Games should not be easy, but also should not be frustrating, especially because of stuff a player has no control over, like network connections.