Perhaps I overstated my examples here. I never meant to say that higher-level villains aren't often capable and competent; what I meant to point out was that even high-level villains aren't immune to making mistakes and letting their ego or their emotions sometimes dictate their reactions. What annoyed me about Williams' writings was his apparent assumption that villains would always have a cool head and would always have the necessary magic items and resources to do everything they want. GwydapLlew, Darklone, and Shilsen got what I was trying to say.
And besides, some of the most notorious villains of the 20th century did some really stupid things. Hitler wasted tremendous resources going after Stalingrad in World War II, and refused to allow the general leading the invasion to withdraw, for no greater reason than his own personal prestige and pride. The invasion turned into a debacle, with no real military gain, and it cost the Nazis dearly.
In another example, as I understand it, Hitler ordered that the most powerful Panzer tanks that the Nazis had in France could only be deployed on his personal orders. Well, when D-Day came, Hitler was asleep and couldn't give the order for the tanks to be deployed-they just sat there as the Allies attacked. Hitler's cronies could have woken him up to give the order, but he hated to be woken up in the middle of the night, and his stooges were too scared of him to go and wake him up. Again, Hitler insisted on hoarding power for himself, and it cost him dearly.
Or look at Stalin. His paranoid purges decimated the ranks of the Red Army, leaving it disorganized when the Nazis attacked, nearly allowing them to win before they managed to reorganize. What good did those purges do, necessarily? They might have done Stalin some good, but how just how much damage did these mistakes do to the Soviet government and army?
Alexander the Great is another example, pushing his army too far and too hard, flying into rages and randomly killing people close to him in paranoid rages, but he still retained his grip on power. He burned cities when there was no need, for no greater reason than to satisfy his ego.
History has plenty of real-life villains who make mistakes that their foes can exploit. No one can deny that Hitler or Stalin were both tremendously evil and tremendously intelligent, and they were not immune to blunders. Why should monsters or RPG villains be any different? If red dragons are egomaniacs, or green dragons enjoy evoking terror in their targets, as the 2E Monstrous Manual pointed out, they might enjoy mixing it up with puny characters, especially if you consider 6th and 7th level to be exceptional, like I do.
As for magic items...anyone who's perused the Canonfire message boards knows my stance on that. Suffice it to say that EGG's warnings about excessive magic items, and his statement that 6th was an "unthinkably high level" ring true for me and were a major influence on my own views of D&D. Kingdoms of Kalamar, for one, gets away with low magic item counts and 8th level and above being an exception, so 3E can still work that way.
I personally think that if every palace guard has a +1 sword or shield, it cheapens what should be something exceptional and worth marvelling at. I can't recall a single fictional character who tossed a magic sword aside because he thought it was too weak. If magic is just another tradeable commodity, I think you lose a potentially interesting storytelling dynamic.
"Another magic sword? Yawn."
How many fictional swords and sorcery characters would say something like that?