I've been thinking about this a lot lately because it's bitten me in the behind a few times.
Think of the Windows User Account Control in Windows Vista (and to a lesser extent Windows 7). The idea is that when something that can break your machine happens (like malware trying to install or opening a system folder), the UAC pops up and makes sure that you're aware of what's going on.
As a power user, I get the UAC control a lot. To the point where I automatically dismiss it. So the one time where it could have saved me (a website was hacked and was installing a virus on my machine) I automatically clicked yes.
Another scenario on the Xbox, you get a lot of "are you sure you want to do this" prompts. Again I automatically accept those.
Well there was one time that I accepted it without thinking then saw "this will wipe your profile saves on all attached storage, do you really want to do this" as the dialog I just accepted went away. With the net result being that I lost a year's worth of game saves from my Xbox. Boxers in Fight Night, Racers in Need for Speed, Fully powered up warriors (and 60 hours of gameplay) in Blue Dragon were all gone because I had become so innundated with "are you sure" prompts that by the time I really needed to pay attention, I had been indoctrinated to ignore them (like how everyone automatically clicks accept on the EULA and Terms of Service dialogs).
Is it a matter of crying wolf? Or is there something more to it. How do I keep the user aware of important events without innundating them?