admittedly i am a rather inexperienced DM, but i would like to share my two cents (accounting for inflation since the probable first use of that expression, my $20, paypal ok?).
I think that it is often helpful to cooperate with the players on the subject of "cheating" and balancing the game. The players in my current campaign understand that munchkinery ruins the game for both sides. It is boring for them if there is no challenge, as well as frustrating for me not being able to run encounters properly. The alternative to this is far more work for me and a stressed out dm for them (stressed DMs are no fun). In fact, my previous game largely ended because the players optimized to much and i developed a far too combative attitude towards it.
Having changed my attitude, the players are less interested in optimization and i think, are roleplaying more because of it. They are also actively supportive of my powering up encounters which are too easy.
taking a cooperative attitude, instead of a punitive one has resulted in a far more balanced game and far more fun.
roleplaying games are not a contest between DM and player.
on the subject of whether the rules tolerate munchkin attitudes and restrict the dm, i would say that the worst offender is the concept of challenge rating, especially in published adventures. Wizards definitely, Paizo far less so. I think it is a business strategy aimed at players. By having insanely easy published adventures which the players breeze through, they create a favorable concept of the system and adventures with players, if the adventures were harder (and.... actually fun) there would be less interest among new players due to the possibility of frustration and/or risk, easy things are very attractive.
excuse this terribly written post, im really tired.