I've been thinking about this a lot lately. In years past, players of mine have complained that my games are too hard because they often fail, either by dying or by becoming frustrated because they can't figure out how to succeed. I think one problem is some of my players think in terms of winning or losing, and my games aren't necessarily pass/fail. I don't design problems to be solved, but scenarios to be explored. Instead of figuring out what the pcs need to do to succeed, I'm often as curious as anyone to see how the games turn out.
I ran a game based on Night of the Living Dead (plus Day, Dawn, Revenge and so on), and some of my players took umbrage because it was an unwinnable scenario. And it was, mechanically. In a low-level, low fantasy world, zombies are going to win the war by attrition-- that was the premise of that game. I freely admitted up front that it was Survival Horror, not Heroic Fantasy, and that the CR/EL net was gone. It was a Kobayshi Maru, no question. It was, like a lot of my games, an experiment. I guess instead of winning it was the type of game you play to not lose, and some people grok that and some don't.
I think parties should fail (by some definition); if not half the time, then probably around 30%. As a player, I find hard won victories to be the most fun and part of that means there has to be a real chance of failure. If you don't ever fail (if you effectively can't), then success feels meaningless.
I mean, there's mechanical failure (losing combats, retreating, dying, getting pwned), and then there's story failure: not solving the mystery, backing the wrong horse, getting tricked, and so on. Mechanical failure is pretty easy to judge, you know at the end of initiative if the fight was win, lose or draw. Story failure is more of a prickle pear, because to me the only "failure" in a story is if its not interesting. A lot of times, not doing the story the correct way is a lot more interesting than simply succeeding-- and to me, the only measure of success or failure in a game is whether or not the people at the table are having fun.
But that's the rub, because what's fun for some people may not be fun for others. As a player, I don't mind losing. Failure tends to make an eventual success much more satisfying. So in game where the party is getting owned, as a player I might be having a blast and another player who doesn't like getting owned could be not having fun or and getting mad about it. Likewise, in a game with a very low chance of failure, another player might be having a blast owning the bad guys and I'm going out of my gourd with boredom, and I start getting frustrated.
I was a player in a game, and my character was the party leader. (This was one of those rare games when we set the party roles up beforehand, and I got the short straw.) In the first session, the group got tricked by another adventuring party to go into a tough fight which we just barely won, and afterwards when we were significantly weakened, the other party showed up to claim the spoils. It was very Belloq from the opening of Raiders, if you'll recall. The group was ready to fight the other party, despite the fact we were wounded, low on everything and they were fresh, roughly as powerful as us and had the tactical advantage. That's not to say we wouldn't have won, because pc's do crazy things and sometimes that works. It wasn't a hopeless battle, but it wasn't the kind you'd go into if you had a choice.
At that point, I was fine handing over the spoils to the other party although I could tell the group wasn't really into it. We ended up negotiating a split of the treasure (using Diplo and Bluff mainly to convince the other party we weren't as weakened as we appeared), and we got 1/3 of the haul. Because I was in the party leader role it ended up being my call whether we'd attack them or not, and I really enjoyed the way the session came out. We lost, another party got the better of us, and we ended up with a pittance. Iit really set up the conflict with the other party, they'd beaten us and now we were looking to beat them. I came out of that game energized because we'd failed. But some of the other players were just disappointed, and we ended up switching that game out for another one.