As far as I know they haven't gone back on the decision to keep Sovereign Death = Game Over. It does bring to mind the question though of why they put so much work and love into the Dynasty system if none of those children will ever become Sovereign's them-selves. In the long run the best thing would probably be a "Heir Option" that you would check at the beginning of starting a Custom game. Also by only allowing this option during a custom game they keep the integrity of Sov Death = Game Over for the single player game and ranked online matches.
I agree with Raven X here, it would work very well with an "heir option" in sandbox mode only. Then the backstory and the campaign could stay the same, and it wouldn't interfere with ranked online games either.
It was pointed out earlier that only the sovereign you start with has the ability to channel life back into the world, but this is not a problem: just let the heir inherit this power and any remaining essence. It was proposed already, e.g. this post on Sovereign succession: http://forums.elementalgame.com/372235
This would be a real dynasty system, where the key power (bringing back life to the world) is held only in the current Head of the Family, and inherited through the generations. For a very good example of this from literature, try Anne Rice's The Witching Hour, about many generations of a family with witching powers, the key power and family secret inhererited to only one in the family per generation, much like above. So it's not even a "gamey" solution.