On Ver.1 and Ver.2, you drop your weapon and your Meseta on the ground when you die.
On Ver.3, you lose 5% Synchro on your Mag for every death and your weapon unequips, and if you die without a Scape Doll and choose to return to Pioneer 2, all of the Meseta you were carrying is deleted.
On Ver.4, you lose 5% Synchro on your Mag for every death, and you lose a percentage of your EXP gained towards the next level, provided you are a high enough level. I *think* the penalty kicked in around level 20 (or perhaps only in Hard, Very Hard, and Ultimate), and it was probably something like 2% of your EXP requirements for that level. In other words, if you needed 50 000 EXP to go from level 70 to 71, you would lose 1 000 EXP every time you died, until you were right back at 50 000 EXP needed to reach level 71 again. (Leveling down was not possible.) If you were level 199 and needed 4 million EXP (or whatever the requirement is) to reach 200, you'd lose 80 000 EXP every time you died. Looking at those numbers, I'm guessing the original penalty was more like 4%, as I'm pretty sure you would have lost > 100K if you died at level 199.
Nobody wanted to play Episode II on BB as a result, since all the cheap deaths made it nearly impossible to level up, despite the boosted experience counts. A single run of PW4 could easily set you back several hundred thousand EXP, so Episode II was very lonely.
I'd be all for restoring the GC penalty on BB (Meseta deletion if you return to Pioneer 2), because without the EXP penalty, BB practically doesn't care if you die at all. One could also argue that the boosted EXP was meant to offset the EXP penalty, but I'd say it would be more fair if you only lost EXP upon returning to Pioneer 2 and didn't lose any if you used a Scape Doll or got saved by your teammates. That way, you don't need to be afraid of Episode II if you have help.