On the other hand, the 3e "level loss" (as opposed to the 3.5e "negative level") can allow for some interesting role playing. I recall a cleric that permanently lost a few levels. Instead of taking cleric levels again, he took first ranger levels and then Hunter of the Dead levels. Such is impossible to do with the "negative level" mechanic, as 3-4 levels later (possibly months or even years of game time) the character is less likely to still have the same intensity - especially with all that has likely occurred since then.
That's why - each time a level is gained - a 'master copy' of the prior level (abilities, skill ranks, specials, etc) is written up for storage. Later, should a level be lost, the former level can be taken out and used without any hassle, etc.
For an example of my prior statement, consider a PC that permanently loses 4 levels. In the 3e system, if - due to differing circumstances - they decided upon their next few level ups to persue a different path, that would be entirely possible. After having fallen due to a magical trap, I can see a PC deciding to take a level or two or Rogue. After nearly being slain by a creature, I can see another PC deciding upon a level or two or Ranger.
With the current "negative level" mechanic of 3.5e, however, they would be forced to effectively retake their prior class levels rather than the ones they wish. You may as well tell a new PC that they must choose - in advance - their first five class levels, and further tell them that no deviation from this initial decision will be allowed. Some may work well with this (particularly those that have a final destination / PrC in mind and intend to lead their character towards it regardless of what they encounter), but others will balk against it, seeing it as railroading or - at best - non-allowance of natural growth of the character (due to the circumstances affecting the character at each instance a level is gained).
It's really a difference in view on the very concept of character creation. I've known several that would not have a problem with detailing all twenty levels of their character (and all feats and skill ranks, for that matter) at first level - not deviating (except perhaps for an occational skill rank, or perhaps a single less important feat) at all no matter what type of adventures the character encounters. And I've known others that could not even imagine doing such a thing.
So I use the Level Loss mechanic rather than the Negative Level mechanic. Those that have already mapped their character's future are not adversely affected, for they will just choose the same classes, abilities, feats, and skill ranks again, while those that are more spontaneous in their character creation at leveling time are similarly not adversely affected, for they once again can pick and choose as they wish. The difference, perhaps, between Judgers and Perceivers, as described in the MBTI.