I stand corrected. I tried out the Defeat Manager again and in the iOS version of the game it does work as advertised. If you die, you do have to select a different character. However, on my Wii u, while it prompts you to change characters, if you wait a second it will allow you to respawn the same character (and if you have an active checkpoint, it teleports the character to that prior checkpoint). You can check this thread for a similar discussion:
http://www.disneyinfinityfans.com/viewtopic.php?f=45&t=13987&p=171979&hilit=Defeat+manager#p171909So, it kind of works on the console version, but it does appear to really work on the iOS version (maybe on pc or android too?).