After having read every comment and researching from different perspectives, I'll have to support the idea of deaths leading to CKs only.
Reason being, the pros outweigh the cons by a LARGE margin. With this system being deployed, every player out there is going to hold regard for their lives as they would IRL. You wouldn't see cops walking through gang territory on their own, people speeding past city works 150 m/ph, etc. People would genuinely be paranoid when roaming alone during the night.
It truly brings adrenaline and personality to your character. People would think twice before being all provacative for the sake of it. It would bring out different varities of roleplay such as extortion, protection, etc. People nowadays would end up being provacative and do their very best to get PKed rather than getting extorted on a weekly basis. I've seen it several times.
With that being said, administrators will have more work in place, yes. Regarding CK appeals, all that jazz. I'm certain they'd be willing to take up that burden for the sake of drastically improving roleplay quality. Every character ends up with 300K, to cry about losing your assets is simply absurd. If you've lost millions, so be it. Think twice about your actions next time, develop a new character and hook yourself on to it.
To those saying many would get killed over a petty reason, remember, they risk CK too. It goes both ways, in addition, that's what reports and appeals are for. 3 slots for characters to play on as well! The PK system makes no sense, it encourages poor character portrayal, in a sense.
Finally, you'd see civilian and business roleplay more often. I'm certain many would pull back from the criminal aspect of roleplay and experiment new genres. This change would be revolutionary, and would filter the community as it should be.