when you do not want the dwarf to dies why did you kill him in the first place?
I got the impression that the GM didn't
choose to kill the PC, but rather applied the action resolution mechanics, which in turn produced that result.
Whats the point of playing when you can't fail?
I think it can be helpful to distinguish between player and PC perspective. The
players succeed provided they have a good time at the table - given that RPGing is (typically) meant to be a recreational, entertaining activity.
Whether or not player success depends on the
PCs succeeding within the fiction depends on group taste. And how PC
death fits into PC success within the fiction depends heavily on the details of that fiction, which the OP hasn't really said much about.
From my own personal experience, I've never died yet my life has not been unvarnished success. So I know that their is no particular equivalence between "being alive" and "being unable to fail".
Since the time when everything else nearly always just results into more adventuring for the party which makes them stronger and gets them loot.
See the OPs suggestion for example. Character dies? 1 1/2 Encounters worth of XP for everybody!
I don't understand this analysis. The players are still alive, and (presumably) friends who want to get together to play an RPG. So why wouldn't the game go on? And when the game goes on, PCs will garner treasure and XP (that's the nature of D&D play, especially 4e). But because a PC died, the game that goes on is about something different from what it otherwise would be - namely, it is about the attempts to bring that PC back from the dead.
WHY you want to play Dark Sun if you wanted no fear of death and to disregard the whole premise of the intention of the campaign setting? I'm curious on why you wish to play what was obviously intended as a deadly setting.
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Why not play your own desert setting where divine magic comes in handy?
I've toyed with the idea of running a Dark Sun game - it's a nice D&D-flavoured version of sand-and-slavery tropes - but if I ever did I wouldn't feel any need to increase the likelihood that the PCs die. I don't really see the point of that, or what it would add to my game (other than disrupting the narrative continuity). And if a PC ever did die, I would probably be stealing the ideas from this thread, which I like quite a bit.