In theory, when a character gets a negative level, they lose the abilities and bonuses gained from the last level taken. At some point in D&D history, that was how it worked. However, that is a huge pain to calculate, and understandably, no one would take the time or wants to take the time mid fight to do that. The rule is made to somewhat simulate what happens. It works fairly well and is a good compromise so as not to cause lots of wasted time.
At some point, I recall that negative levels did not do hp damage. Looking at the 2nd ed rules, that is in fact the case. It did not do damage, but it did reduce your hp max that you would have gained from whatever levels were lost. I do not want to go back to the 2nd ed rule of determining everything you lost, but I would like to retain that hp rule.
Instead of the 5 hp of damage per negative level, I would like it to be you lose the average amount for your class in hp from your max hp per negative level. So a fighter would lose 6 (5.5 rounded up), etc. Now, this could cause you to lose hp as well, if you were at or near your maximum. This way also evens the effects of the spell, as d4 and d6 characters are more adversely effected; since the amount of damage is based on number of levels lost, and they either never or rarely get 5 per level.
The remaining question is what should happen if your characters maximum drops to 0?
1) It can't, it can only drop to 1
2) It drops to 0 and you are comatose until restored
3) You die
4) You die and are potentially turned undead as you would be if your negative levels equal you levels + HD
Opinions?