Randomthoughts
Adventurer
Of your choices, my preference would be 3. But your scale addresses only the situation that PCs find themselves in. But as Umbran mentioned above, how did that encounter arise? Did they search it out? Did they miss clues that this would be a Deadly encounter? Ultimately, my preference is based on a lot of factors so I'd probably fall under "using a different scale altogether".<snip>
3) Deadly. When we are in over our heads, let the dice fall where they might.
2) Somewhat deadly. When we are in very dangerous situations, give us a clue to a way out.
1) I don't want my character to die.
<snip>
So where are you on the scale, as a DM or a player? Or would you use a different scale altogether?
One factor is genre. You mentioned D&D so let's stick with that (versus superheroes, which as we all know, (permanent) death is practically non-existent). But the main factors are the campaign I want to run (or play) and the game mechanics of said campaign. Some campaigns (in D&D) I want to explore character, so I lean toward 2 (but usually never 1). But for the run-of-the-mill campaign or a hex-crawl, I like 3 because the game mechanics do the heavy lifting to achieve the level of lethality I like.
So for D&D, I like the lethality of 4e and (to a lesser extent) 5e. As you've probably heard, PCs in 4e are pretty robust. Plus, they have death saves and much (perhaps all) of the save-or-die stuff were stripped away. This doesn't mean that PCs weren't knocked out often (at least in my games, they were). And in my Dark Sun campaign, I added house rules to increase lethality [1]. But if a PC dies, it was pretty much due to poor choices like doing nothing to help their dying comrade or not running away/surrendering if that's the best thing to do to survive. Interesting to note too that the VTT I'm using (FG), which has a lot of automation, doesn't allow fudging, as far as I know.
If players wanted 1, D&D would not be the right rule set to use.
[1] Once you reached 0 hp, you rolled 3d20 each turn on death saves, meaning there was a (slight) chance of instantly dying.