What I generally want in a game I run (and what I want is not absolute, but if I'm running it, it carries a lot of weight), is that death be feared strongly, but happen rarely. In a perfect world, the characters would fear for their life every time they did anything remotely dangerous, but would never die. And to top it all of, I don't want to run a particularly gritty game. So no maiming instead of death. No, "didn't get there in time to save the orphanage--so all the little orphan halflings burned to death." But I'm not going to let the perfect be the enemy of the good.
That isn't to say that there can't be some fairly nasty consequences for failure. There are. They just tend towards the heroic or villanious, instead of grit. Heroic death is one of the options. We just happen to see, "any death that occurs while on an epic quest is heroic, even if that death was eaten by a wandering owl bear two days out from town."
What I've found with various players over the years is that what produces this result varies. I've run for people where the "Don't do anything stupid, and I'll fudge you out of it," works great. They wear "be clever all the time" like a badge, and never take their eyes off the ball. They stay alive right up until they bite off more than they can chew, or go down in a heroic frenzy of self sacrifice. Either way, we are happy. If I go for something more strict, we TPK constantly, from living on the edge all the time.
I've also run for people for which that exact same setup is a complete disaster. They get so worried about doing something stupid that they go into extreme turtle mode. You'd think we were running "The Red Dragons with Chainsaws Massacre" with those halfing orphans as PCs, instead of a Fafhrd and Gray Mouser kind of story. OTOH, if I run zero fudge, dice in the open, "time matters, and you don't have that much of it," style--suddenly these same turtles turn into Aragorn, Legolas, and Gimli in the action scenes from the LotR film.
Both types have tended to engage with the story. They weren't just playing to advance in power, get more treasure. Sometimes they didn't care about that side at all. What I have noticed is that some players tend to not metagame in the "use player knowledge as character knowledge" way, but will try to "read the DM." Those types tend to react in the turtle mode described previously, if the DM gives them signals, such as "being stupid removes your plot immunity." I've found it better to not give them anything to read. The game happening in the story is the game. React to that, and see what happens.
For some reason, as my game has evolved, I tend to attract that latter type.
