Khur - You are definitely correct in your view that level drain is not a very well defined (per the book) phenomena. Then again, the same thing can be said of some stat drains: charisma drain - does it water out my personality, my ability to project my feelings to others, my empathy, cause the 'pot effect' on the target (great speakers left in a stupor)? Create feelings of inferiority. And wisdom drain - do I truly become unwise, or just become more gut reaction/act before really thinking things through impetuous? Does the circuitry in my head that normally identifies good from bad ideas get fried? Intelligence drain - do I lose the ability to think quickly, lose knowledge, the ability to apply logic? These variations are all valid interpretations, but which one to use?
I stand by current use of level drain, but I can see your position as well and couldn't dispute your use of it. A drain or damage to anything that has such role playing impact requires definition by individual DMs per their own spiritual and cosmological development. In mine - level drain drains the sacred heart, while intelligence and wisdom damage harms the mentus, while a charisma drain targets your spirit. These aspects of what a person is made of are core to my game - and so the definitions work for me. That said, your system seems fine to me as well. 'sides, I love the look of fear when level drain is spoken aloud!