Maybe in Arnold and Megan's experience, but not in mine. At both Princeton and George Mason, I found one of students' main problems to be low morale. This ends up being a self-fulfilling prophesy: Students with low morale don't try to be creative and productive, which leads to mediocrity, which reinforces low morale. I think it afflicts many excellent but under-confident students, who endlessly polish articles that should have been in the mail months or years earlier.
The typical grad student I've known profits more from encouragement ("Your paper is fine the way it is. Put it in the mail right now, while I watch.") than being taken down a peg. At risk of sounding like a self-help guru, the grad students who succeed and eventually make real contributions are generally those who are too proud to fail.
P.S. I sense a skeptical reply from Robin Hanson coming. In anticipatory rejoinder, let me say that I'm not telling grad students to overestimate their potential. I'm encouraging grad students to live up to their potential.