In my OD&D session this past monday, one of the PCs was hit by a wight and lost a level. Miraculously, four first level characters with a few zero level retainers defeated a group of 5 wights (3 HD creatures with numerous invulnerabilities and the fearsome energy drain). Thus, I had to clarify how level drain was going to work.
Talysman posted this interpretation of level drain back in January. When levels are drained, experience points are not decreased, though all level-associated characteristics (hit dice, spell progression, attack rank, turning undead, etc) are adjusted down. Assuming the character survives the ordeal, the lost levels can be regained. This separates the idea of experience points from the idea of level in this limited case, but I don’t think that will cause any major problems.
In Talysman’s example, gaining a single experience point is enough to recover a level, but no more than one level can be regained per session. So, in essence, a drained level forces a PC to be run at below strength for one or more sessions. This is a bit less final than permanently losing all that XP, but still costs the player time. I can see how this would make sense in game world terms, too. An encounter with undead should be a harrowing experience, and characters need some time to recover their confidence and abilities afterwards. I don’t think this weakens level drain too much, as the wickedest aspect of level drain remains: PCs killed and reduced to level zero rise again, adding to the ranks of the undead.
The basic idea works particularly well for Vaults of Pahvelorn, as HP is rerolled every session in any case. So there is no hassle about remembering the previous hit dice rolls. However, it does require a few minor adjustments to fit my other rules. For example, I award XP when treasure is spent, so by Talysman’s rules a surviving PC that has been level drained would immediately regain a level following the session (assuming they had some treasure to spend). I think that PCs should be required to run at least one session at the lower level for the drain to have impact. Thus, rather than regaining lost levels after accumulating more XP, one lost level will return per following session survived. Practically speaking, this is almost the same thing, as it is a rare session that results in zero XP.