Permadeath sounds like an interesting idea on paper. Hardcore players want that adrenaline rush that comes with the fear of loss. However, not everyone feels that way, as there are practical problems with permadeath.
For starters, most people are aware that in an online game you will experience connection issues. Nobody wants to lose 100's of hours of work to lag or a disconnect. There is no real way to prevent players from experiencing these issues and, given enough time, you will eventually lose your character to them.
Then there's the issue of risk VS. reward. Many people will 'play it safe' and simply grind lower level encounters to prevent untimely deaths. This causes the game to become really boring and people end up quitting. To prevent this, you have to reward people appropriately. This however, is almost impossible, as you have to make any single encounter worth as much as every single previous encounter combined.
You may think that's a bit unfair, and I agree, to an extent. While people enjoy playing video games, without any sort of progression, the game becomes little more than a fantasy FPS; die, respawn, die, respawn... etc. Progression means work, and people will tire of working for the same things over and over again, especially if the reward for success is little more than their previous encounter.
I think people are just tired of zero or near-zero death penalties in MMO's. That doesn't mean the solution is to implement its polar opposite, as that will cause just as many problems for most players.