- players fear death, this is good as long as it's not extreme. We had some event long long time ago, in which some of the players stopped playing, because of fear of dying.
- death has tremendous impact on a player (it means loosing months of grind fe) and can be so hard to deal with, that there are cases of players stopping playing because of this
This isn't bad. These players may not be your target audience. As I understand it, your game is designed for very hardcore gamers. If you change things to cater to more casual gamers, you might break the very core of your design.
If you want a better understanding of why people stopped playing, I recommend this article on loss aversion.
- since players are overly cautious, they do not die and become stronger and stronger - it's a balance issue
You can solve this by applying natural level and skill caps.
For example, a Warrior's natural Strength cap might be 400. Once the cap is reached, any further increments can only come from gear. This encourages doing content to get better gear to do harder content, or beat content more easily.
The best designs do not have purely vertical progression (e.g., wooden sword -> iron sword -> dragon sword -------> infinity +1 sword) that increases stats, but horizontal progression that allows for different playstyles.
For example, in Ninja Gaiden for Xbox and Ninja Gaiden II for Xbox 360, the various weapons one acquires throughout the game open up very different fighting styles (strong but slow, fast but weak, short reach but fast and strong, long reach and strong but slow, etc.).
If your game offers content that demands high defense from a Warrior, then that gear that drops from a boss that boosts their defense becomes pretty attractive. If it also offers content that demands high attack strength, then that new shiny sword that drops from another boss becomes pretty attractive as well. Then, for that one boss I want to use a shield and sword, but for that other boss a two-handed sword would be pretty awesome, and so on...
And at the end, I want to pass on this very important principle to you that is very often forgotten:
YOUR FANS ARE THE PLAYERS WHO LOVE YOUR GAME!!!
The players who hate your game and leave are not your fans. Make your game for your fans!! Don't make your game for your haters!!