Generally speaking, I favour a loose approach to GMing. I like creating detailed settings, but I usually allow the players quite a lot of leeway in the process (I might have them each say one thing about the setting, or I might let them create a handful of NPCs who they know, for example) and permit them to do what they want with their character within reason.
I think this is more-or-less standard amongst GMs, at least among those who blog regularly or post on Google+. We tend to avoid being too draconian. I wouldn't describe it as a fear of saying no, but there is a sense in which being a stickler about your setting - in which being precious about it - is seen as petty and old-fashioned. It's unusual (I think) for a GM to tell a player directly, "No, you mustn't do what you want to do in developing this character - I don't want that type of character in my game".
It is even rarer to imagine a GM saying to a player, "No, your character mustn't do what you intend him to do" once play has begun. That goes strongly against what has now become established orthodoxy wherever you look, be it on story-games.org (where players are supposed to have narrative control), within the OSR (players have complete freedom within the sandbox) or at rpg.net (where you must never judge anybody for anything or tell anybody how to behave - unless of course they have the wrong opinions, but why would you game with such a person in the first place?). It is the most arbitrary and obvious form of railroading.
Which is all well and good - generally speaking I don't want to run games in which I am constantly telling players, "No, you mustn't do that". (And here I have to stress the distinction between "No, you can't do that", as in "No, you can't understand dragon if it is not on your character sheet", as opposed to "No, you mustn't do that", as in "No, you mustn't torture that orc".) In the vast majority of cases, that way leads adolescent authoritarian bossy madness.
I do wonder whether this avoidance of "mustn't" prevents the GM from acting like an auteur, however. This, you may think, is no bad thing - indeed, there is little more horrendous than a GM who thinks he is a novelist, as we all know. But let's try a thought experiment: imagine that your GM was actually Tolkien, or Mieville, or George R R Martin, or Mervyn Peake, or RE Howard, or H P Lovecraft, or [insert your favourite fantasy author here]. Wouldn't you want to allow them to auteur things to a certain degree? Wouldn't you be interested in having [your favourite fantasy author] have complete control over the tone of the game, within reason? From time to time, wouldn't you want him to tell you "No, your character mustn't do that, because it is not in keeping with the type of game I am running"?
I don't for a second mean to suggest that if Tolkien was my GM I would want him to boss me around to such an extent that I had no control over my character. I am not making an argument for turning RPGs into interactive fiction - God knows Dragonlance was bad enough. But I would certainly want his guidance to a certain extent - I would want him, from time to time, to tell me, "No, what you are proposing just is not appropriate for my game".
Nor am I suggesting that sensible, decent people with an average level of social skills can't just sort out misunderstandings around tone between themselves in the vast, overwhelming majority of cases. But "vast, overwhelming majority" is not the same as all.
Is there anything to be gained from allowing a GM a greater level of auteurship than orthodoxy suggests? Should a GM be permitted opportunities to say, "It's my party and I'll cry if I want to"? "This is my game and I just don't think what you are suggesting is something I am comfortable with"? "Trust me that things will be better for us all if you just don't do that"?