My group is usually good at knowing when an encounter is too much for them to slug it out. I run a Planescape campaign, and to be honest if they went around thinking everything they come into conflict with, one way or another, is to fought and killed I'd be having a TPK every session with little torn scraps of character sheets scattered across the floor like so much fake snow at the mall at Christmas time.
And as a DM thats not what I'm looking for at all. But I trust my players to know when to talk, when to draw blades, and when to walk away and fight later. For instance, my board namesake, Shemeska the Marauder has been a long term foil for the group, and they're insects as far as she's concerned. If they went after her in a dark alley 6 on one, they've have maybe a 10% chance of surviving. And she's never alone, ever.
So yes, she's a horribly evil fiend and she gets her jollies by subtly tormenting them and usually insulting them when they don't scrap and bow and grovel in her presence, like she she expects most berks to do. But despite this, they know they can't kill her because she's too powerful, and even if they did kill her, her death might do more to damage Sigil than not. Who knows what she has contingent to happen upon her death... and until they know, thats a serious worry that heads off any action on their parts against her.
On a regular basis I throw encounters at the PC's one to two CR's above their level, if not more, and I expect them to act intelligently in the fight, or if they have to, to flee. They know what they can handle and what they can't.
The group has improved tenfold since the game started, both in RP ability and judging what to do in such situations. For example, they recently found themselves in conflict with members of the planar sect, The Illuminated, and have managed to pull themselves out of it. No combat involved, though I had the entire gatetown worth of sect members ready to go if they decided to go in with swords drawn and spells blazing.
Not all things can be fought immediately. Shemeska aside, she pales to the newly risen Oinoloth of the Wasting Tower of Khin-Oin IMC, Vorkannis the Ebon. Correct or not, they suspect him of being more than the reverse albino Arcanaloth he appears to be, and while he's very likely the personal match for any of the Lords of the 9 of Baator in a fight, and the nominal ruler of a race of fiends, they're biding their time till they can do something to take revenge for some of his actions. As pie in the sky as it sounds, in the meantime till they're that powerful or influencial, they content themselves to act against his agents or interests elsewhere, hoping to sting while staying just small enough targets themselves to avoid being squished.
