I can certainly see it both ways.
On one hand - it's very hard to pull your punches outside of a calm sparring environment (and sometimes hard even then - I've sparred with a lot of guys who still hit really hard because of the difficulty of gauging how much of your power you're using). People also die in brawls because the person who killed them was trying to knock them out - humans are startlingly fragile. Beat Down somewhat supports this stance.
On the other - feats exist to give you more options, and in this instance the feat actually removes an option from your arsenal. Which is quirky. Several other chains let you change a weapons damage type by the second feat (Fencing, for example), not reduce types. The game itself is also highly cinematic, where most people don't die from an errant punch, and the players are highly capable. The game also doesn't possess a location injury system, so you can't target locations that will knock down or slightly paralyse your enemy without killing them. This side of the argument is fairly "gamist" in many ways, but then again, so is Fantasy Craft.
Personally, I rule the latter - characters can inflict either Subdual or Lethal damage with unarmed strikes at will. Flavour-wise, it represents their training giving them the ability to aim for specific locations on their target that have a higher chance of a knockout / death blow. Like Deral, I've had no real issues in game.