Five words that never bothered me as a DM.
"My character wouldn't do that" will only be said to a DM who is, in fact trying to tell a player what his/her character is doing.
Don't do it and ye shall never hear it.
I fully agree.
As a player, I
hate it when DMs try to dictate what my character will do - and I've had DMs try it. I don't merely say, "My character wouldn't do that," I say, "My character is
mine to play, stop assuming what he/she will do," just to be clear. I once saw a DM stipulate that a PC did something that shortly led to the PC's death. The player clearly disagreed with the DM's assumption of what his character did (even before the death occurred), but he wasn't the confrontational type, so he let is slide. This same DM has a tendency to come up with particular storylines that he wants to play out, and that's when he acts this way. (He doesn't always do this, however. Believe it or not, he's overall one of my favourite DMs. This is his only real fault, and he has responded well to my constructive criticisms.)
As a DM, I almost never hear those words from a player. When I do, it never bothers me. Hell, I've put work into some parts of an adventure that get completely bypassed. This doesn't bother me (I can use the stuff in the future), and I never railroad my players. Note that this does not mean I don't have storylines. It's just that the stories that emerge are based on player input. It's their game as much as it is mine.
More often, when I hear a player say, "My character wouldn't do that," it's in response to other players. That's something I leave to the players to work out. Of course, we may, from time to time, need to be reminded that we're playing a collaborative game. Sometimes the player just wants to roleplay why they end up deciding to follow the proposed course of action, rather than playing mindlessly. Compromise can be important. I remember once, as a player, making a decision that seemed to leave the DM uncertain about what to do next. Noticing this, I told him that I was okay with changing my character's mind about it. To his credit, he went along with it - I guess he just needed a minute to think it through. Nonetheless, I don't think any DM should expect this, even if it's a nice thing for a player to do.
See, to an extent you're both right; a GM shouldn't tell PCs how to act or what to do, but there are times when the GM wishes to advance a story* and the PCs react poorly to it.
* Yes, I know story is a evil, black word that makes some people break out in convulsions. Let me clarify. Unless your game involves the PCs wandering exactly wherever they want to and doing ONLY what they chose to do, the Gm will place obstacles, goals and reasons for them in ways to make the PCs react. If they want the fabled treasure of Akun-Ra, they need to enter the desert of woe and seek the five keys that lock it. If a PC decides his PC can't/won't jump through said hoop, the game can logjam until either the GM or the Player compromise; even if that compromise is forgetting the treasure and hunting orcs in the Sugg Swamp.
Story is why I play the game, but it should not be dictated by the DM. I tend to start off with a general concept, letting my players know what sort of campaign it will be. Sometimes I give them several themes as options, and their decision determines where I set the campaign in my world. Sometimes the character's backgrounds tells me what story will be pursued from the beginning. Sometimes we start off with the sandbox. But when the PCs pursue certain quests, that tells me what stories to develop,
after they've decided to pursue it.