The Life for Unlife ability has officially been replaced by getting Dread Undeath as a bonus feat. It pains me to do this since it fit the flavor of the class so well, but it was a choice between flavor and practicality, and practicality won out.

The whole problem is that most characters who prestige into the class just aren't going to have enough HP to make the ability worth using, since Wizards and Sorcerers only get a d4 HD and the Dread Necromancer's d6 isn't much better. Unless you're a cleric or someone who prioritizes Constitution (or just really lucky with your HD rolls each level), animating or creating even one moderately powerful Undead is going to take a hefty chunk of your HP, and you're not going to get it back until the thing dies.
I can't just drop the whole "sacrificed HP can't be healed" thing either, because that makes the ability WAY too powerful; it goes from being "I sacrifice a portion of my own life to create this undead creature" to "I spend 30HP to make a 12-headed Hydra Skeleton, then use my Wand of Cure Critical Wounds to get most/all of it back."