I started to write quick response to this post at Tenkar's Tavern, but a longer response emerged. I've actually been plinking away at a more GURPS-specific post about risk and PC safety, which I'll finish up tomorrow if I have time.
The meat of the post Erik wrote is this paragraph:
"In game, I think it's important to remind PCs (and their players) of their relative vulnerability. If the players discuss running instead of engaging (even if they do engage 90% of the time after having said discussion) when things look horribly tough, you as the DM are doing something right. If your players always run head long into each fight, never thinking twice, never considering escape, you need to remind them of their vulnerability. Sometimes all it takes is a single PC to die to make it real (in the context of the game, of course.)"
I think just as often I see the opposite - excessive caution due to concern about potential lethality.
A lot of what people celebrate and hold up as a perfect example of old-school play - getting the treasure without fighting - can feed into this. If you celebrate lopsided unfair fights engineered by the PCs, the risk of jumping into danger, maximizing reward to risk, and ensure that beyond any door you open can be a pot of gold or death with no saving throw . . . and couple that with high lethality play, you can easily get the "any risk is bad risk" approach to gaming. The risks are so high and the most celebrated way to win is with clever risk minimization over bold action - so caution is called for and rewarded. You can end up with the "only open chests in town, never fight the monsters the first time you see them, back off whenever you can" strategy.
Which makes sense in reality, even if you do lose a lot of opportunities by not taking risks. Still, you do what you can to minimize risks or prepare for their eventuality and then, as Erik says, put them to the side and get the job done.
But with imaginary paper guys, it's kind of odd. Your real world risk is nothing. The sunk effort into that character is lost, possibly forever. But the character is there only to facilitate fun experiences. That's pretty much it. It's a paper marker meant to let you have imaginary fun. That's import to remind yourself - any loss, ultimately, is just a gateway to having different fun with a different character. You don't really lose anything except the unrealized potential of the lost character . . . and that has no more or less unrealized potential than the next guy you make up.
Throwing away a character with foolish play isn't the goal, either. There is not a binary choice between "assured PC victory" and "possible PC death." Instead you have a continuum of automatic success to automatic failure, and between them are vary levels of assured risk and potential reward. Push it too far toward lethality and you can trigger a very cautious response, going as far as to do nothing knowing it's better to fail by not doing than to fail by doing. Push it too far away from lethality and you end up with no reason to be cautious at all.
All of that said, yes, I play cautiously most of the time with my own guys. I try not to take risks that I can't see giving a proportionate reward. Yet I try to keep in mind that, if I get whacked, all I lost was the fun of succeeding with that particular paper man. It's something I try to let everyone know - losing guys is part of the game, and (ultimately) part of the fun.* And that there are rewards out there commensurate with the risks, even if they don't always show up in the same exact place and time. Balancing the risk to reward as a GM so the players feel that way, too, isn't always easy.
In short: lethality is good, but there is point where too much pushes the players to risk minimization instead of risk:reward maximization. And I think the second is way more fun, if somewhat tricky to do.
* With some games, like the ones James Ward has written about or Paranoia, getting your paper man killed (six times, in the latter) is really a major part of the enjoyment. I'd argue both come with big dollops of reward for the risk to your paper man, in terms of what you get out of the game, out-of-game.