Perhaps a card for the currently nonexistent archetype. I somewhat feel the urge to use the "Siren" type here instead of "Spirit".

Seems very strong for its cost - I'd argue that in terms of one-drop power level, it's arguably better than Jace's Phantasm in terms of build-around-me-payoff, since you're usually doing something above curve or getting card advantage if you're losing life during your turn.

The ability is kind of awkward. It's worded like a trigger, but it's a static ability, and I imagine people will play it incorrectly thinking it's a trigger. Furthermore, there are some relatively nonintuitive rules interactions - if your opponent attacks with two 2/2s, and this creature blocks one, it wouldn't die when damage is checked because you lose 2 life and it's now a 4/4. But it also doesn't kill your opponent's creature because it was a 1/1 when it dealt damage. I'd actually think it'd be more interesting if the trigger only occurred during your turn - functionally it'd be mostly the same (outside of some post-combat toughness checks during the opponent's turn), but it'd point more towards a specific type of build.

I also think Distinguished hinders this design more than helps it. I think there should be some more non-distinguished creatures so Distinguished decks aren't just mindless picking each (almost all) white creature that shows up.

I'd like this much more flavorfully if it lost its white and Spirit characteristics when the change happens - a lot of cards in Odyssey did something similar like Wayward Angel.

I agree with everything you just said - except that there are only 2 white commons with distinguished and without this only 1 white uncommon with distinguished. Theoretically the level of impact is around where I want it be, but the card' rules text is a friggin' travesty.

Since the edits are gonna be so expansive, I'm gonna list the old card text here.

Version 1.0

> Flying
> Distinguished (This creature is legendary if no other permanent has the same name.)
> As long as you've lost 2 or more life this turn and ~ is legendary, it gets +3/+3 and is a black Horror in addition to its other colors and types.

Version 1.1

> Flying
> At the beginning of combat on your turn, if you've lost 2 or more life this turn, Pale Court becomes a 4/4 black Horror creature with flying until end of turn.