This sounds interesting. I'll have to give it a closer look when I have more time. I can see the permadeath thing going either way. In real life, people take great care to protect themselves because if we get hurt or killed or imprisoned, we really lose something. Online, there's always the option to just roll a new character. The risk is quite low in the scheme of things, and so people tend to try things they couldn't in real life, like being a criminal or murderer or just plain being a dick, because what's gonna happen? And if enough of this type of person join the game, permadeath will not work out very well.
On the other hand, it could work out really well if you get good players who treat the game and other players with some respect and see this world for the opportunity it is, to create rather than destroy.
I've seen recently how a game can encourage "nicer" behavior from its players by rewarding it in a tangible way. Glitch did an amazing job of this (I'm still mourning its passing). There were quests to give, help, and be nice to each other, and the overall atmosphere was about fun rather than power. Dickish behavior was not really punished, but there was no advantage to it. I know that this game will not have quests or dev-imposed morality, but I still think it would be possible to gently encourage people to not be assholes. I think this should be considered, at least as a backup plan in case things don't go well at first.
My own personal idea for how to make permadeath work out better is to make death a normal thing, not a "game-over" type scenario where you lose everything. Each regeneration is an opportunity to try something new, and maybe each time you die, you get some new options depending on how long you lived (to prevent people from just killing themselves to rack up points somehow). Maybe people can give each other positive or negative "ratings" or "fame" somehow that counts towards this regeneration. That way people wouldn't get so angry about dying, but still have a motivation to live longer (and therefore not piss people off).
I would love to see a game with some sort of "karma" system implemented. At "birth" you could choose your "dharma" (obviously these ideas would probably be renamed and tweaked), which is your sort of life goal. At first you can choose from two or three randomly selected "beginner" paths, which would be neutral or positive. Becoming a master craftsman or explorer, for example. Actions you take in the game which help you reach this goal give you karma points, and ones that detract from it give you no benefit. So you can choose a different path without being punished, but you won't gain any advantage from it. Each time you regenerate the karma points are used to tweak your dharma for the next life the way you want it and let you try new paths that were closed to you before. Established characters might even get the option to become a master criminal - by that point they've proved themselves as trustworthy members of the game and can be counted on to play their role honestly and without griefing. No path would ever reward anyone for killing, though.
That system might not be the perfect fit for your game, but it's just an idea. If you can find a way to motivate people to live longer and not piss each other off, while making death something that people won't ragequit over, you might get permadeath to work out well.