I use what I like to think of as Tailored Static encounters.
The world exists at least from the point of immersion. I want the world to actually feel like it revolves. It doesn't need to, but the illusion has to be there.
As the players are the focus of the story, if they do stumble across said red dragon, instead of being blood thirsty he may just be really pissed that someone was foolish enough to enter his lair. This would be the cue for the players to run, if they don't run, I'm not going to break immersion, and have the dragon not eat them. The world is a dangerous place, and there are bigger fishes in the sea than you, don't bite off more than you can chew. I'm not here to make situations in which your characters can accomplish anything simply because you're there. But as opposed to a roll for initiative and TPK, they were given a chance to run. In most cases I'm sure I'd give a bit more than that - such as seeing a huge dragon footprint.
Again, I like it when the players know there are bigger fish in the sea than them - and it gives them a sense of accomplishment when they defeat them, or get high enough level to say "Remember that X that was planning Y? Lets see what ever happened with X and see if we can stop Y from happening." If not Y happens and it may or may not come around for the PCS.
For example, I recently finished a campaign. The players fought against a group of people that they knew were evil, but they didn't know what they were up to. Near the end, they found out that the leader was actually an ancient dragon in it's years of twilight attempting to become a dracolich. Obviously a 10th level party could not face the ancient dragon, but they did stop him from becoming a dracolich by stopping his lackeys from finding and gathering all the necessary components. While the story had an "impossible" monster to defeat, they had a way to deal with the situation, and the players actually liked how they did something so significant at level 10.
So I guess you could say, I attempt to take the best from both and weave it into one happy medium for play.