besides i cant stand those AI exploiting douchebags who kill you with one char with a LSW and 20 ammo and pick all the stuff up with the other one, if one character of a faction is to be attacked by guards, all his friends (tagged people, or people in the group that tagged under same guy he tagged) and faction members will be shot on sight, this DOES however, most often happen in encounters, where if one guy attacks a caravan, the caravan attacks everyone else, happened to me many times when i tried these shenanigans. so a faction to city reputation should be implmeneted, so that if the general reputation of a faction is bad in a town, none of the faction members of that faction can set foot in it without getting shot to death
May be simply make guards shout "Don't touch the stuff!!" and then shoot looter, if a killed person was protected? I mean:
1) if someone attacked a protected player and then died by guards or other player, you can loot a body of a attacker, but can't loot a body of the protected dead player.
2) if a thief has been killed, you can loot his body too.
3) if you've looted a body of a protected player, guards start shoot you and shout something about stuff, etc. And then noone can loot your body, or else guards will shoot them (looters) too.
So, if a protected player dies in a guarded town, guards will get his stuff and kill anyone who will touch it.
If an attacker/thief/unprotected player dies in a guarded town, guards will run to his body to loot him as now, but if you'll do it faster, it's ok, they won't kill you.
This way exploit will be a bit harder, but still possible, because at Fortress you don't need even to die, just bring there 2 mercs/slaves/brahmins and you can do that alone without friends.
SF has weak low-damage guards, so if devs will buff them a bit (not quantity, but quality), then exploiting in SF will be almost impossible.
About topic:
Making anything with faction reputation by attack or something can be avoidable/abusable.
They can kill you without being tagged as party member/leader, they can separate in town without making a party, they can kill you and thier character can not belong to the same faction, or to the faction at all, because they can use special alt, or even it can be just thier friend who don't have any faction.
This is MMORPG, you can have more than 1 character, and use them as you want.
Edit:
Oh damn, someone already suggested it:
http://fodev.net/forum/index.php?topic=5595.0
