It probably wouldn't be a very good idea to have your health-bar increase concurrently with your prowess -- however, you make a fair point about its significance in combat. "Get-Stuck-In" types of fights in the current version are incredibly short --like a slightly more fantasized version of the time it takes for a fight to end in real life-- and I imagine the amount of powerful attack/deception/trapping jutsu available in later stages will be able to get to pretty vast quantities, making it so much easier to die.
...However, there's an argument that could be made that having a smaller/medium-sized health-bar for E V E R Y O N E would emphasize (Well, what do you know!) more stealthy, tactical game-play, for the exact reason you gave of people only having one life on a character. Additionally, characters will only die in the Perma-Death Border-Zones between each of the villages -- in all likelihood, it's quite possible that an entire invasion-force could slip through a border, attack another village, and lose *without* all of their characters specifically *dying* in that engagement.
In an equal respect, of course, that entire invasion-force could be ambushed and slaughtered simply because...wait for it...one side made proper use of an Intelligence Force to gather information on the enemy before and during their entrance into the Border-Zones (stream-sniping might even be a viable option here, although I doubt anyone with a lot of investment in their character would be stupid/crazy enough to openly give away their army movements through a stream -- but it's still a possibility).
The majority of players *probably* won't go into the Perma-Death zones -- and given the nature of many PvPers, most of them will *probably* know to try and book it from an area in which they *know* people are dropping like flies or are likely to. People are survivalists...what else is there to say?
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