Hopefully in the personality rewrite, happiness gets a lot more complex.
Death should be very complex. There are a myriad different ways real life people handle loss. With death so prevalent in DF, it would be good if it also modeled the toll it took on the dwarves.
Fortresses should have a sort of global happiness value. Lots of deaths should lower fortress morale overall. Even if a dwarf didn't know any of these dwarves, the loss of your entire military should come as a shock to the general population. Certain events could raise morale (defeat of siege, murder of elves, etc).
An individual dwarf should only tantrum if he is significantly more depressed than the average. I'd say a lot of people are upset about the recession, but the idea that I'm not the only one helps me feel a sense of community. Misery loves company after all. This of course could change based on the dwarf's personality, whether or not he's a noble, etc.
A dwarf dying should affect other dwarves in different ways. The way he dies should also affect how others feel. In all cases it should take into account who the dwarf was. A legendary axedwarf dying in battle should be less upsetting than Urist McMilker dying to a goblin.
Assuming that in the future dwarves will be capable of more relationship types (squad mate, coworker, childhood friend, etc) the relationship should shape their reaction. Time should also be a consideration. If you are friends, but you haven't seen that dwarf in 5 years, it probably won't matter as much.
Basically I'm looking for Dwarf Fortress: Soap Opera Edition