If reasonable punishments for minor crimes are in the game, that will probably substantially reduce the number of "OOPS I MURDERED THE WHOLE TOWN" instances.
There are any other number of creative penalties which could be applied, depending on how much time and effort Larian wants to put into them.
Gold fines for minor crimes (possibly even creatively coded to prevent "ha I am not carrying gold, what now"? (Answer: "You now have been cursed and have negative gold equal to the unpaid amount of your fine. Pick up any gold and it vanishes to pay off your debt.")
Some form of Community service tasks could be required for middling crimes.
If the party or someone murders a town, that could even trigger attacks by a Divine Order death squad. After all, it makes sense that if a town gets massacred, that will draw a lot of attention, and bring more heat on the party than they'd otherwise get. The items the Divine Order death squad carry could even be enchanted to become useless on death, broken and worth only 1 gold.
But that's probably all way too elaborate and none of that will happen.
(My favourite would be - a large number of assassins turn up in the night and kill all party members in their sleep. All saves for this character are deleted. Laugh that one off. But somehow I don't think and games maker would have the nerve to do it.)
An instant-death-and-save-wipe with no options for doing something the game cheerfully allows you to do is not good. That should only be reserved for anti-piracy punishment, so if the game detects that it's been pirated, it plays out normally for a good 10 hours or so, then ZAP, you get that outcome.
Any other use of it would only be good if the developers loathed their customers and wanted them to suffer.
