The blogosphere is debating level drain. Grognardia has a post on it, Lord Kilgore has a post, and I'm sure there are others. It's one of those recurring topics you'll see every six to nine months. (Another such topic, also currently making the rounds, is initiative.)
I'm not too concerned with how powerful level drain is, but I am concerned with the in-game explanation (levels are not and should not be things discussed in the game world.) I am also concerned with the extra bookkeeping involved, erasing and rewriting things on a character sheet multiple times during play. If I hate to do that for hit points, and hate having separate hit points for sanity, I'm certainly not going to be fond of level drain -- or, for that matter, alternatives like attribute drain (see Shadows.)
The original idea behind level drain, I believe, was the way ghosts and vampires in legend seemed to weaken their victims. The original vampire didn't even drink blood, but was more like a mythic explanation for the patterns of disease: someone dies in the village, relatives report nightly visitations by the deceased as they themselves weaken and die. It's interesting that this winds up being represented in D&D three ways: Strength drain by shadows, aging by ghosts, and level drain by vampires, as well as lesser variations on the vampire theme.
Personally, I'd rather just go with aging only for ghosts, aging plus hp loss for wights, increased aging or hp loss for stronger undead, and "critical hits to the soul" (Con save to avoid soul drain, three drains = death) for vampires and succubi. Oh, and I think all undead should have weird damage rules. You can't just kill them like you could a bandit or a wolf; they're already dead.