This idea from Terra Nova would certainly help clean up Barrens chat: nerfing characters as a penalty for bad
behaviour in-game. If you use an alt to misbehave, then they'll all lose a level every time you break the bounds of
Key problems with this idea include inconsistency between GMs (we've already seen the trouble one slightly misguided GM can cause) and the systematic targeting of players; if you really want to hurt someone, get everyone you know to report them and suddenly they'll be back at level 0.
As Terra Nova's commenters observe, social pressure and access control (making the players ashamed to misbehave, and banning them) are the most effective ways to control behaviour at the moment. However, if you lost a little bit of xp every time you called someone "gay" in general chat, you might well be less inclined to bigotry in public--the idea's got some potential.