Maybe your very powerful Chaneller can be defeated in battle but not killed until his kindom falls. Meaning when he is defeated in battle he teleports back to his main castle. Wether is he weakened or not I leave up to the devs to decide. It could be that for a few turns he cannot do antyhing change anything, something like that.
This way you cannot just end the game in a quirky battle.
I actually liked the system in Populous quite well. When your shaman died, you'd respawn (not immediately) at your holy ground/"shrine". I think it was something like 30-60 seconds before you actually respawned, so you couldn't do anything with your avatar during that time, but you could still order units around, etc. Additionally, during the time where you're "dead", your opponents (actually I think it's just the one who kills you) gets a mana regeneration bonus for the duration. I really liked this, but I also have to admit to abusing it-if memory serves it was something like 4 or 5x the normal rate. I could kill off an enemy shaman, charge up my dragon spell, rinse and repeat.
However, if you lost all your followers, you couldn't respawn anymore, and although it's been a while, I think you may have instadied as well (unsure).
EDIT: Remembering now that there was one level where you had no followers to speak of, so the instadeath must be a no. That level was...interesting to say the least. I enjoyed it, but it'd suck immensely if all of them were like that.
Which isn't to say that modification wouldn't be necessary and although I must admit to being too concerned about the actual current mechanics to have read all the ideas and conjecture in this thread, I will do so at some point in time and I do think there are good ideas here.
Not that my opinion is worth anything. 
The beta testers will be making the final call on this. But my opinion is that if they die, that's it.
Right-o. Guess I need to hurry up and preorder then.
I looked in the other topic linked but didn't see a dev's word on it so I'm replying to this one-it's also more current. It seems to me kind of like losing in GCII when your civ capital falls-while I'm aware that analogy is a bit stretched to say the least, I believe it makes the point I'm attempting to make. (As a note-at least initially, in Star Chamber, if you lose your homeworld, you lose the game-regardless of how many other worlds you have, or ships, etc, etc. I don't know if it still is that way, but that's the one thing I hated the most about it, and this idea of death being the end of your character seems to be similar to that, albeit on a different scale.)