I wrote this on someone elses blog and thought I'd put it here. Though google bots will hate me for 'duping'.
Now, basically if you see it as a penalty, your (selectively) losing sight of the bigger picture and missnaming everything. Imagine you have a game of snakes and ladders that lasts for 600 hours. Is going down a snake a penalty? No, it's part of play.
Now you could even take out all the snakes and have either a few squares of advancement, or jumps up a ladder. Would not going up a ladder be a penalty? No, it's just part of play.
Well stick with having snakes for now because it's clearer.
Okay, what's happening is your looking at the short term picture and inventing a game there - your thinking 'Hey, I'll shoot for that ladder - hope I can make it! That's the challenge, to get to that ladder!'. Then you hit a snake instead and go 'Aww, what's the point of this snake! You don't need snakes/penalties to have the challenge of getting that ladder!
Your problem is, your focusing on the small picture, and when you do, the snakes become penalties instead of just normal gameplay elements.
Even if you removed the snakes, you'd probably treat not hitting a ladder as a penalty. After all, in wow death means earning less in one hour and you already see earning less as a penalty.
You think you can have challenge without penalty. It's only because you cherry pick, seeing the bigger picture when it's a ladder, but when it's a snake you only see a smaller picture and go 'what's the point?'.
Think about it, do you say '1000 gold? What's the point? - it could just say I win! I don't need to earn 1000 gold for it to be a challenge!'. Do you? No, I see no rants on that! On complaints about the apparent 'penalty'. You only say 'I don't need a penalty for it to be a challenge'. You never say 'I don't need a reward for it to be a challenge'!
Inside, you like winning in terms of the big picture, but when you lose in terms of the bigger picture, you game ambiguity, look only at the short term and call it unnecessary 'penalty'. Equally the 1000 gold is unnecessary 'reward' if your really only interersted in the short term challenge, but you don't complain about that, do you?
Neither is reward or penalty. Just ladder and snake on your way to the end. And yes, unless you buy the hype the game is endless, there is an end as much as Die Hard had an end, despite Die Hard 2.