To summarize, yes, my players are mostly hack and slashers and don't seem to care one bit about a continuous storyline. I'm probably about 80% satisified with the game the way it is now as I still have the heart of a hack and slasher.
Yes, the mod is deadly, and I'd expect nothing less from a mod with its name behind it.
I made a couple of house rules to make death less deadly. I changed the price of raise dead and resurrection so that they were based on the level of the player being brought back and were almost always about half their current price.
However, each player when they dies says "Oh well, I'm dead. Hey, I've always wanted to try <insert class or PrC from one book or another>, let me start making up that character." Each time they die, they just see it as an opportunity to play something they haven't been before who might be more powerful than their last character as survive better.
I'd also like to note, that I haven't really been killing them on purpose. They walk into a room, there is a symbol of death on the floor, 2 PCs fail their save and die. Not much I can do about that.
But the party seems to be having some fun. I introduce new characters quickly and without problems. They happen to be wandering around the dungeon looking to defeat the same evil forces the party is and run into the party or their god gives them a vision of the party and tells them to help them. The story has SORT of flowed, due to the fact that it has basically worked like this:
Party of 6 has one party member die
New one joins, hears about their quest, joins them
2 more party members die, 2 new ones join them
3 more die, 3 new ones join them, entirely new party, but at least a couple of them remember the original party and know what the quest is
I just keep imagining how silly it would sound to people joining the party at this point: "We are going on a quest to defeat evil. We are continuing a quest started by some other people, who died last week, then was taken up by a different group 3 days ago, who died yesterday, now we figured we'd follow in their footsteps."
I think I'd never join them
As for missing members, we've been just having them vanish with no one even wondering why and just reappearing when they get back to avoid having to role play out and make up a reason each session since we have an average of 2 people miss each week now. We once had a TPK, where 2 members survived because they weren't there, everyone rolled up new characters, formed a new party and was in the middle of going on the mission again when the old party members reappeared and we pretended like they had always known each other.
The only way I could find to solve this problem is basically allowing nearly free true res continually, I think my players would only continue to play the same characters if they knew their characters wouldn't come back at a level lower. I already implimented the rule, "if you make up a new character, you come back at a level lower anyways", but I had to put a bottom on it, because the party was starting to drop below 10th level in an area designed for 12th level characters.