Schneier wrote a nice article on zero-tolerance policies which he refers to as "zero-discretion" policies. He brings up the recent story of the cub scout who brought a camping utensil to school as an example of an unbalanced policy gone awry.
Zero-discretion policies stem from the need to avoid inappropriate discrimination, that is to be "fair". To that end, no discrimination—no matter how warranted—must be allowed. You know you're dealing with a zero-discretion policy when the enforcer of the policy agrees with you, but "those are the rules, I can't do anything about it."
Schneier recommends a four-pronged solution:
Rules - Start with the rules & procedures.
Discretion - Throw in a dash of discretion to taste.
Appleals - Add plenty of opportunities for people to appeal.
Audit - Stir occasionally to ensure smooth consistency.
In short, provide some room for interpretation (discretion), and then make sure that that room doesn't get abused (appeals & audit).
What are some examples of situations where you've encountered "zero-tolerance" policies?