Unlike Gary Gygax, I don't fudge die rolls and I strongly prefer it if the GM doesn't. But I have no problem with other groups doing it if that's what works for them. I don't see the point in attempting to construct a logical system which proves that what those groups are doing doesn't work, even though they say it does.
The case of a GM fudging things in a subtle way, such that the players don't notice, is an interesting one. I have to admit that what I don't know couldn't hurt me, so if a GM managed to do this and as a result made the game more exciting/dramatic/better, it's hard to say that that's not a good thing. Provided I never found out about it.
Piratecat raises an interesting point about fudging in both directions. While I don't fudge when I GM, I find I still have vast influence over events, even when I do stick to the rules (sometimes I don't), thru the GM's ability to control ad hoc modifiers, make rulings, and decide the actions of NPCs and the way the environment operates. Not to mention being the player's only source of information. That's massive, colossal, gigantic power right there. A power I definitely abuse, almost always to make fights closer than they would otherwise be. In other words I make easy fights harder and really hard fights, where it looks like the PCs are going to lose, easier.
I remember reading in some edition of Champions that the best fights are those where the PCs find it tough, but just manage to scrape a win. Pretty much the way a lot of fights are in fiction. Something like that is, I think, what I'm attempting thru my abuse of GM's authority.