Now I am not sure most players who want the DM not to fudge or pull punches would have the same issue if the DM is adjusting things on the fly because he made a mistake and the encounter is not one where the party never stood a chance.
IME it's a hard call which GM is the bigger Loser - the guy who inadvertently creates a TPK encounter thinking he's made a balanced encounter and lets it proceed to inevitable TPK, or the guy who inadvertently creates a TPK encounter thinking he's made a balanced encounter and fudges so the PCs win anyway.
IME though the latter (obvious fudging to turn TPK to victory) is seen as worse, by me and by most D&D players, and results in a total loss of respect for the GM and his game. Never again will the players see their victories as honestly earned, and IME when the GM does this the game soon dies. IME it's normally better just to play it out to the bitter end - maybe the PCs will escape (at least some of them), maybe they'll somehow achieve victory by their own efforts. Maybe they'll go down fighting heroically, in which case the GM should congratulate them and if possible make sure their deaths are meaningful. As GM I had a TPK in February 2011 and again last month, both times I was congratulated by the players on running a great battle! In the recent case it was the climax of the campaign, a 300-meets-Horatio doomed last stand on the bridge against the Necromancer and his thousand-ghoul army. Everyone died, but they gave the stonemasons time to collapse the bridge and for the citizenry to escape the town before it fell, saving two thousand lives.
However, there is a happy medium of the
absolute minimal 'out' - if it would really be unfair to kill the PCs with no chance of survival, the GM puts the absolute lightest hand on the tiller in their favour, using something previously foreshadowed - part of the environment, a flaw in the villain's psyche, friendly NPCs, etc.
Eg: Fighter PC Conan has fought well against massive odds, but Rexxor the veteran High Priest of Doom has been over-statted - he's several levels higher, has massive DPR, and it's clear that it won't be Rexxor who runs out of hp first. So, a bit of divine intervention, IC and OOC - dead Rogue PC Valeria returns in a split-second vision that stuns Rexxor for a round, giving Conan just the chance he needs to turn the tide.
Or, more prosaically, in my own game recently, it was the first encounter for 3 brand new PCs. I turned what was scripted as a safe, illusionary encounter with 3 Pathfinder orcs, into a lethal ambush by 3 very real orcs, on the road just west of a country inn. Only I only had 3 players, not the 4 the module expects, plus Pathfinder orcs are heavily under-CR'd. The PCs fought well, but 2 were down, the last kept going only by his great AC. So I had travellers from the nearby inn hear the noise of battle and come out to assist the last PC - they only arrived in time to scare off the last orc, but it prevented a possible first-encounter TPK that would have been really unfair on the PCs. It was a perfectly plausible event to occur, but AIR I decided it by fiat rather than a probability check or pre-scripting. If that is fudging, to me it falls within acceptable parameters.