There is already punishment built into the system in the form of lost wealth.
If you create a character at higher level, and do it by the book when it comes to gear (L-1, L, L+1, 100gp), you are behind everybody else in wealth by upper-mid Heroic, and way behind everybody else in paragon.
Even if you were to loot the character, unless the new character is exactly the same, you will need to sell much of the gear at an 80% loss to buy new character appropriate gear, still putting the new character behind the rest of the party. And if the new character is a clone of the old character, or anything else that makes the DM feel that the player is trying to game the system, then you should:
- start having situations where retrieving the gear is either costly or impossible (lava pit, belly of a purple worm, etc.) or
- talk to the player about how "the gods" (you) cause heart attacks in characters who "work the system" followed up by a series of unfortunate cardiac arrests.
I mean, seriously, if the gear is readily retrieveable, then so is the body, and why didn't they just resurrect the character?
Aside from
to hit and
damage, the
effect difference of a level 1 power vs a level 7 power is pretty big, and the difference of a level 1 and level 13+ power is tremendous, from a tactical standpoint. So, if you are keeping someone at level 1 powers for any length of time, you are punishing the whole party. It would be similar to sending a squad of marines into combat, but the medic only gets a raincoat and a revolver cause he is the new guy.
Also, if a character who is, effectively, heroic tries to play with the paragons, he will get chewed up. The paragon path features and powers were accounted for when they calculated the paragon monsters. There is a distinct threshold in power that is crossed.
Finally, if a character is restricted to level 1 items, that means level 1 enhancement bonuses. This means that the character's attack and defenses are still lagging behind the party, making him a liability again. And if you play at all in paragon, the difference in feats is very large.
Now, if you want to create the low level feel for reasons other than punishment, maybe just make it so the character only gets 1 normal encounter power slot and 1 normal daily power slot to begin with (let them keep any Paragon Path and Epic Destiny powers, to offset the tier power difference), and can add an additional encounter and daily slot each level until s/he has the full compliment. It keeps the math simpler, and the powers relevant.
I don't really like this option, but it is
less punishing to the party than restricting powers to low level powers.