Full loot makes hostilities between players meaningful and is very post-apo, and so is poverty. Technology and equipment are more valuable than life, the idea of killing someone to get his stuff is probably one of the most common recurring themes of the genre. Moreover, this game's balance is mostly dependant on its economic system, I don't even want to start getting into how atrociously raped it'd be if people could save their stuff upon death... I mean, what would they be risking in terms of material belongings? It'd be linear progression, with even the least skilled players running around in top-tier armors waving top-tier weapons - which currently is mostly used by people who do understand how to play.
Diminishing experience is just beyond retarded. It's almost as bad as perma-death. What reason would you have for NOT killing a weaker player? Right now I can at least give him back his stuff, somehow I don't think I could give him back the exp. It'd just lead to massive griefing and depopulate the towns. I mean, who would risk being bursted by 5 lvl 1 big gunners who somehow magically keep their Avenger Miniguns after forcing you to spend the next 2 hours grinding to get back to 21? Who would PvP if death meant you basically become useless for the rest of the day? What do we want, one fight a week? Great idea if what you want is killing the game. And it's not even that you'd have the wet dreams of a safe north realized because of less gang on gang fighting - if anything, everyone would be shot on sight because a) delicious tears and b) gang members being bored.
And it's not even that this idea is based on a real, existing need for change. Equipment is ridiculously easy to get once you know how, there are quests that get you low- and even mid-tier stuff for free - if anything, make more of those or give us repeatable ones. Moreover - complaining about bluesuits? What the hell? The issue is basically non-existent because the vault suits go down once we transition into full 3d, it's just not worth it rebuilding the game to get a temporary fix.