@Sealystar I like this it adds a little Mysticism to the game without being as intrusive like other Magic ideas, make it operate/fueled on red dust or something like that too so it won't be too effective. Or something along Zielak's rain of thought.
I would suggest making the essence drop have to be crafted into the item in the center of the totem.
Would create the totem.
That way, the essence would still be a rare drop, but you'd have to collect enough of them to have that repel idea. Also, as someone said already, have it only temporary before it breaks into its component pieces (Sans the )
I kinda like the idea. Nothing really necessary, but I guess it would help defending your precious base against stray creepers (since those are the only mobs I'm afraid of near my base). I would suggest using something in the lines of Catman's crafting recipe - a rare drop is fine, but if a player gets it on the first kill, he's got an instant super repel right away. Having to collect and then fuse 9 rare drops would balance it out. I think the recipe for the totem should also use an amount of 1-4 diamonds - else, you could just set up a monster farming machine and wait a couple of days.
I think it should need some sort of power supply - either something burnable (same as oven; planks, logs, coal with different efficiencies) or redstone dust. The latter would make it more interesting, but I guess it wouldn't fit in the minecraftian universe, since redstone is only an information transporter, not an energy supply.
How about redstone torches, though? Once the totem is set up, right-click it and a 1-slot menu will open. You can place in one redstone torch and the totem will repel all mobs of the respective type for 1 full ingame day. The torch instantly disappears (and maybe you could add up to a full stack of torches, just like with the oven) and an energy indicator fills up. The indicator slowly decreases until it reaches 0. After that, the totem would either directly use the next torch on the stack or, if no torches are available, become inactive.
Edit: I really liked the idea the more I thought of it, so I went and pixelated some possible concept art (for a creeper totem):
Why complicate it with breaking aparts or requiring fuel and such? Just give it a small radius. That way, if you really want to repel mobs with totems, you'd have to place one totem each five or ten blocks until your base is "surrounded". Otherwise the mobs could still sneak trough your defenses. And seeing as essences are literally rare, you'd generally have to battle a lot.
Say you have a base with the width of, say, forty blocks. That means you'd need at least four totems for one type of mob to repel that kind of mob. That means you'd have to collect 36 essences.