One of the assumptions of an OSR games (generally) is that characters get changed. They level up, gain power and magic items, and also they are cursed, poisoned, have their levels drained, and even die. You could choose to play without some or all of that, but to me that’s a general qualification of what OSR is, particularly in comparison to some more modern forms of D&D. In fact, when these things are brought into / retained by modern-system backed play it’s often referred to as ”old-school feel”.
I think it’s also reasonable to say that most players don’t want bad things happening to their characters. In fact I think that most DMs don’t really want bad things happening to the PCs either, or at least not things that are actually bad for the player (ie: not merely a dramatic setback or an inconvenience). In both cases there are times when it’s completely appropriate and beneficial for something bad to happen, even character death… Better for a character to have played out her story, struggled, failed, and died, than to simply get by on the ”mercy” of the DM. That’s one big reason why we retain negative impacts in games (even newer ones), the other being that we want to allow the threat of bad things to drive the gameplay. Steamrollering through the dungeon may be amusing for a while, but I think most players and DMs enjoy something with a bit more ”challenge”.
I’m not entirely happy with the way that RPGs typically handle the fallout of these ”bad things”. Level drain, for instance; this is one I’ve often seen described as the absolute worst thing that can happen to a player’s character – worse than losing magic items and far worse than a dead PC. And I can see the reasoning behind this (even if I don’t 100% agree with it): XP are the valuation of success in the game, both your success as a player and your character’s success within the game world (such as: level titles, the ability to construct a keep or other holding…). So how does the aftermath play out: either you can get access to a Restoration spell, or else you just have to claw your way back up the ladder…
I’m really not sure how you go about handling this. The most significant insight I’ve had was actually reading (and I must have skimmed over it in my youth, but I must also have missed the import of it, as I was dead-set on starting new characters at zero XP) Gygax’s suggestion that new characters added to existing campaigns begin at as high as 3rd or 4th level. And so, for level drain as an example, I’d consider giving the player a pool of XP equal to what was lost, and allowing them to double or triple normal gains by supplementing with XP from that pool until it runs out. I base this idea on the concept that lower-level characters should ”catch up” to higher-level PCs because each level requires more and more XP to acquire. (Most likely I think this pool should probably be capped so that a character can’t use it to zoom ahead of any other PCs?) I wonder if that’s not wandering too far afield, however – both is losing the old-school ”hard-core” vibe, and in added complexity.