Level 1-2: Average Party Level or Equal to the Lowest-Level PC (choose lower)
Level 3-7: Average Party Level - 1 or Equal to the Lowest-Level PC (choose lower)
Level 8-17: Average Party Level - 2 or Lowest-Level PC's Level - 1 (choose higher)
Level 18+: Average Party Level - 3 or Lowest-Level PC's Level - 1 (choose higher)
Basically, as the party goes up in level, I'm willing to accept a greater disparity (because individual levels are a less significant percentage of the character's power, and, at least in D&D, levels in general are less important relative to magic items). At no point will I accept a new character coming in above the level of the lowest-level surviving PC in the group.
All of this assumes the character died randomly (quite possibly from player stupidity) or the player just decided to retire the character on the spur of the moment (quite possibly so he could try out something new); if the player wanted to work in the PC's death or retirement over the course of an adventure, I would allow him to bring in a new character at the same level.