This story is about a day old...so if you are interested I hope it still gets to you.
Without knowing your situation it is hard to say as two primary employee stock option plans exist, NSO and ISO plans. Under an NSO, if given an option to purchase stock at a fixed price you, for all intents and purposes, own the stock but are able to delay paying taxes until you want to actually purchase even if an ascertainable market value exists that would reflect the value of your options. Suppose that options to purchase the stock are exercised at a price of $2.00 a share. If, at the time of exercise, the fair market value of your company stock is $3.50 per share, then $1.50 per share (the difference between the fair market value of the stock and the exercise price) would be treated as compensation income. If the stock is held for more than one year and subsequently sold for $5.00 per share, the additional $1.50 per share of appreciation can qualify for capital gain treatment. Depending on the options available to you this may be preferable than an immediate liquidation to cover tax costs as those shares could be held longer and receive capital gain treatment which it doesn't sound like yours currently are. So many situations exist it would take me hours to cover them all but it is a starting point to think about.
It is double taxation in this sense:
Situation 1: Make $100, all put into 401k, able to buy $100 in stock. Later, stock is sold and taxes paid - 1 instance of taxation.
Situation 2: Make $100, paid out to you via your check with 10% Income Tax. Able to buy $90 in stock. Later, stock is sold and taxes paid - 2 instances of taxation.
To answer your last question, I can't explain why the tax law is like it is in regards to heirs cost basis upon inheritance, just the potential savings it entails. On a side note to that though, you'll find that good financial planners warn about variable annuities as opposed to an investment like previously mentioned because that specific type of investment burns the heirs by making them pay ordinary income tax rates on the gain. Makes it a little crazier thinking that one financial instrument gets treated so differently than another. :)