Losing XP / LEVEL DOWN doesn't fit with the current game structure.
your points should be increased a little for losing, cuz its still experience! If a player hits you and they gain 6xp you should gain 2-3 for losing
The essence of experience is what YOU and YOUR CHARACTER gain from everything you do, including losing fights.
To be correct, you should go UP in experience when losing fights.
I can't really see what's wrong with the way things are, tbh. Levels are hard to obtain on higher levels - you need to be active a lot to keep up with everyone around you. To be losing xp all of a sudden would make it really, really, REALLY hard to level up for most people at my level, for example, but be a breeze to people like Haldol, Mehdi and Nukdog (and NUTS and Vic Vega and the Pho Viet-gang and most of Pyro and DARKVIPER and...well, you get my point.)
//Formidable - DeathWish MGS