What will become of the items and money of those players that were permabanned? Couldn't they be distributed among the new players, who still lack equipment?
I imagine an invisible lottery where every gen 0 character automatically participates. One day, he finds a message like "Your unknown relative Cheater_the_Grey, who was recently executed for his vile crimes, has bequeathed his masterwork elite scimitar / his light kuyak / the sum of x gold to you."
Result: a happy newby, who is now more competitive to all those loom-stackers out there, yet at the same time gets a stern warning as to what happens to cheaters.