This was something I used to do as a GM, and I did it for one big reason - to put the fear of death into the players. For some reason, the ripping of a character sheet (especially if the GM has a fiendish grin on his face when he does it) provokes this visceral reaction. It says "your character is DEAD, GONE, and he's not coming back". As a group, we loved this. It really made character death something to be avoided.
That being said, if I were to do that to a player and he became offended, I'd definately apologize and admit I had made a mistake. But, really, I never thought it would be considered a big deal until this post. My players certainly had no problems with it.
Of course, I haven't done this in years.