Oh yeah, I am 100% behind this. There should be actions, obviously stupid actions, that lead to instant death - TPK.
Like with the dragon, a cutscene plays where the dragon takes off and then incinerates your entire party - No combat starts, you just die. There is precedent for this with Planescape Torment, certain actions lead to no-combat instant death.
That sounds like somekind of "hardcore" or higher difficult lvl to me. You guys dont want the game be too easy, but Im not sure what it has to do with consequences. Player who plays on easy or very difficult lvl, the consequences should be the same. Lots of people like to play game on easy mode.