Considering that a large amount of "failure" at combat in CRPGs comes down to either encounters not customized for your party, a bad roll (or succession of such), or (as is to often the case) an expectation from developers that your characters have been powergamed or otherwise optimized heavily towards combat, how is substituting death for a different, yet still existant, penalty a bad idea?
Partial failures become a waste of time that is not desired, while still not forcing the party into a cookie cutter design specific for each encounter or the developer's explicit expectation for what your party should include. One thing I absolutely abhored about Baldur's Gate II (although, I love it so) is it expected you towards the end to practically have two fighters in your party with +5 swords. I'm playing a RPG and the only fighter I liked was Sarevok, so up until Throne of Bhaal, closest thing to a fighter I had was Jaheira and Minsc.
IF, just IF, D&D characters and parties were capable of overcoming any hurdles thrown at them it would be one thing, but they're not.