Q: The X-Babies would have total immunity if the game got into the power pack. The "Dead is Dead" rule prevents that. "Dead is Dead" is a good rule that wasn't enforced in the early days of OP.  However, it seems that it causing more confusion than anything.

A: First of all, X-Babies would not really have "immunity in power pack".  Without substantial artifact enhancement their Power card immunity would become quickly moot due to the substantial venture beating they would likely be taken.  Can you say, "Venture 7".  I knew that you could.  You'd only need to slap them with a single high power card and then they would have to try to damage your character w/o KO-ing him.

Before Li'l Phoenix X-Babies were actually pretty easy to swat down with specials and particularly teamworks.

You touch on an important point here, Dead is Dead is overly convoluted.  I've seen experienced players be unable to play the rule correctly.  Were it merely complicated it would not be bad, but it's worse than that -- the rules describe a form of KO which is altered by inherents and specials, which is in turn altered under certain circumstances by "Dead is Dead"...  Pretty dubious rule.  Much better ways to deal with the problem.

One would have been an event which said, "All inherent abilities containing the word  'KO' cease to function until end of turn."  That would have gone through and swatted down X-Babies almost all the time along with Grunge, Grifter, and pretty much anyone else who was part of the hit stacking brigade.

Now, Dead is Dead is not (to my knowledge) an old rule that wasn't enforced.  The old rule is listed below (it is now a MetaRule):

(89) Specials which alter how a Character can be KO'd are not in effect if the Character has been KO'd by all possible means (spectrum and cumulative). Note that Inherent abilities are always in effect, no matter what conditions have been met.

This feels like a somewhat gaping hole in the rules as it says NO MATTER WHAT CONDITIONS HAVE BEEN MET the inherent protect the character.  Clearly this is not the case.  You can see, however, that the old rule (now MetaRule 89) did not include IAs... It only affected special combinations like "Pile It On" and "Android Endurance" (I think that was the old combo).

My event example is only one way a game designer could have taken care of this.  I have about 6 cards like that which make people pay for hit stacking but which don't alter the game rules in a confusing example to accomplish it.