I liked how it was done in Baldur's Gate (and all of the other Infinity Engine D&D titles). No respawns, but resting in an area or fast traveling had a chance to trigger an ambush. You could use these to grind if you chose, but otherwise they served merely as a deterrent to excessive use of rest breaks (without save scumming, anyway).
D:OS doesn't really have a need for "rest breaks," however, so the main reason for such a system's existing is notably absent here...
