I like the skill system. Perhaps it can be improved like most things, but it's very much serviceable as it is. There's progression until a sort of skill plateau where you'll hover around unless you actively do something about it.

It's my belief that most of the people who are annoyed with the death skill penalty are those who expect the game to have a more linear progression, like ordinary rpgs. Maybe they focus too much on the skills? Some people never look at the skill points. I glance at them once and awhile but don't care about them. I care little if I die. I try to avoid it, but it's a part of the game, just like the penalties which, aside from the potential issues of getting your gear back, make you care just enough to try avoid unnecessary deaths, without making death a major issue.

As long as I easily (appropriately easily) can get by with very average skill stats, things are decently balanced imo.