While no longer in the game, I think it's a really interesting idea. Indeed it's something which would make WoW a lot more interesting and also make sure people didn't play for 12 hours straight. Perhaps when you first log on, you'd be rested and fresh from your nap in an inn. After a couple of scuffles you'd be normal (as in the game now) but as you did battle with critters and mobs this would change. Perhaps if you did too many battles you'd become fatigued as your armor degraded and then, if you died too much, exhausted and forced to nip to town for a stiff drink and repairs.
While normal and rested XP have always been the boon and bane of the leveling toon, do you think a system like this would work? Would it make WoW a little more challenging, even for folks at the level cap (sans experience gain of course)? Did you play WoW when Patch 0.6 was released, what did you think of the differing levels of XP? Do you think something like this should be returned to the game?