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The icon would ruin immersion. I don't know if you've played in a group before, but it's incredibly difficult to keep track of everyone and I like it better that way. An icon that appears when you're within 10m of them would be nice, but you shouldn't be able to see them from any distance beyond that.
So how would sleeping in game work? You stare at the screen while your person lays in a sleeping bag for 8 hours? I don't think requiring a person to have a sleeping bag to log out is a good idea either. The randomness of loot means you could find virtually everything before you find a sleeping bag. The idea of sleeping while you're logged out is interesting though. Logging out normally, I imagine my guy roughing it on the forest floor. Logging out with a sleeping bag he's having a much better time. What if the purpose of a sleeping bag were to regain a stat while logged out? If logged out with sleeping bag: slowly regain blood If logged out without sleeping bag: lose a certain amount of temperature?
So what does that person do while they're handcuffed? Can they try to run? Guess it depends on whether or not their legs are broken. The person who handcuffed them certainly shouldn't have control though. That would be far worse than death and I'm sure everyone would just suicide.