One thing I don't like from one of the best DM's I've played with is his expectation that players have the same knowledge as their characters. When you are playing a high-level character, they should have a certain grasp about things in their world that you being a lowly human just couldn't understand.
Like when you waste a day chasing something that your character would clearly know you can't catch (as a result of your fantastic knowledge check and the fact that it seems to be outpacing you) - this is exactly like the waterpipe.
I like role-playing - but I put points in social skills because they should have an impact on more than just the price of the sword you are bartering for. I feel that there are three proper ways of handly social interactions:
1) You have the player roll, then you tailor the conversation and the responses of the NPC based on their roll. If the players get a high diplomacy roll, and the NPC didn't, then the players should have the upper hand in the discussion and forgiveness should be given when the players slip up in the speech or start to go off-course.
2) You role-play and then give the player a bonus based on how well they did. This is a more advanced method, but still utilizes the system for its intended purpose.
3) You role-play and if you think the players did great, you just leave it at that. But if they didn't do great, you need to give them a roll, because they are playing a character - and the character can have skills the player does not. Even the most socially inept player should be able to have the opportunity to play the suave seducter of women if his character has the right skills (see Gamers 2 - Dorkness Rising and watch the bard).
The other thing that drives me nuts is how the NPC spell casters always have the right spells memorized... even though you surprised them in their lair, and they just got out of the bath, and they are nursing a hangover from the sacrificial after-party, and... you get the point.
For myself though, I have found that I am having a hard time balancing expectations from players some times. In one situation, I had most of the party locked in a jail cell in a stone building. It was up to them to either talk their way out or wait for another PC to bust them out. I explained that this building was made of stone, had a slate roof, and only a very large support beam running across under the roof to hold it up. He decided that the beam would catch fire if he through alchemist's fire at it and the guards would let everyone out. He through the fire in, and sure enough it dripped into the cell where the other PC's were and caught their bed on fire, but since the beam was so thick, it didn't burn. A lot of smoke was created and the guards ran out because they wouldn't just try to free the PC's to save them. The fire went out soon enough and other than being dirty and warm everyone was ok, but the PC who threw the fire wasn't happy with the result. He still thinks it should have worked. I normally will let any decent idea work, and just modify my plans, but I tried to make it clear, even to the point of telling him it wasn't going to catch fire, but he still did it. So this time, he wasn't satisfied with the result.
Another time, they were doing some reconnaissance on an enemy occupation of a town. The PC's that went in are very stealthy, in about the +14 range, and they knew the town better than the occupiers. They were sticking to the roofs of all of the nearby buildings and discovered what building it looked like the enemy commander had taken over to make his own for the duration. This is not a big town, nor is it a rich town. Most of these buildings have poor locks if any. And the windows don't even have any as a rule. Sensing an opportunity, the PC's decided to see if they could get inside. They proceeded to roll nothing under a 15 on the die the entire time. They get in, find the commander sleeping and coup-de-grace him. We are using the pathfinder system, which is basically 3.5, so if you are familliar, you know how easy it is to kill someone in their sleep. Needless to say, I hadn't anticipated them rolling so well, and I don't like to allow basic guards who are 20 feet away at night with no light source (cloudy sky) and at most a perception bonus of +6 to see players when they are tolling over 30. It makes the players feel like their skills don't matter. But this outcome was not one I had anticipated fully. The players were happy (they had to leave behind almost all of the possessions since they wouldn't carry them back out the second story window) as they had just decapitated the enemy, but I was dissatisfied with the result as I hadn't really anticipated them being able to pull it off. It was an excursion that didn't involve the whole party so that is my main problem with it - the battle with the big bad guy was denied to half the players.