@ThatGuyThere
This is one of the cruxes of what I've been debating on replying to the thread. It's funny that it came up almost simultaneously with a facebook thread about 'how do we stop everything from devolving into killboxes' in LARP that I'm participating in. The mechanical portions of combat have teeth. They have detailed X does Y rules. The mechanical portions of social and other methods of 'conflict' often don't, or when they do, they're extremely unenforceable (or get so much blowback from players that it's not worth enforcing them).
As far as villains/factions, I don't think that they can work well on a non-condeath MU* for the simple reason you provided: investment and ability to play. You rarely ever see a faction-based conflict media where the 'main characters' (which is what I consider PCs on MU*s to be) die regularly (well, okay, Game of Thrones, but even then it's not every episode). Even if red shirts and extras are dying left, right and center.
In Underworld, Selene gets shot and injured and nearly dies, but doesn't die, while lesser vampires get eaten by Lycans and shredded by UV bullets. In TF comics, Optimus Prime gets blown to slag and recovered to rebuild, while Gyro the flyingbot explodes into bits of flotsam in space, never to be recovered. In Gundam, Amuro Ray blows up Zakus by the dozens, but Char vs. Amuro is a showdown with neither dying while their Gundams get disabled.
I still haven't come up with a really GOOD way other than try to determine quick, painless approval processes (which won't work on games as complex as WoD, because of everything that has to be fact-checked and notated and all of that). And that requires something that I think a lot of MU*s are lacking: trust in, and communication with, their playerbase. The WoD game I was working on, I planned to have a policy of 'you can go IC and play, staff will review and some retcon may happen' and I even wondered then if it was a workable.
I've often wondered if a game that is set up with an in-built reason for characters to die, and then come back, would work. Like the Phantasy Star II genesis game cloning chambers, or a game where characters can be rebuilt like on Transformers. But that's something that cheapens death and, to some people, is probably no better than condeath scenarios.
Perhaps mechanics baked into the MU*, separate from the tabletop or other gaming system that exists, to mitigate PC 'death' scenes, while still allowing for villains to be defeated. In the Buffy RPG, doesn't the Drama Point mechanic allow you to skip death by spending them? In the Final Fantasy tabletop I run, there's Destiny that you can use to 'cheat death' when a monster with Killing Blow would kill a KO'ed character. I wonder if building something like that into the game would help; make it a limited resource, but dramatically appropriate.