Much of the game is focused on combat, and punishing the player for fighting at all undermines the combat part of the game. That said, I do not mind times when combat is a bad idea. For example, trying to fight much superior forces, betraying factions you are cooperative with (and you still need them), etc. I hope the game eventually supports faction elimination like Risk or Exerelin. I am tired of playing paperboy to the factions.
What I mean by "monumentally stupid act" is stuff like attempting to fight forces much stronger than you or other unwinnable fights (instead of fleeing), killing quest givers (and forfeiting unique rewards munchkins drool over), playing with a dangerous macguffin better left alone (e.g., Utwig bomb), attempting an obviously self-destructive action multiple times before the game (master) gives up warning you and lets you die or ruin your game. The sort of foolish stuff an adventure game or game master would mock you for trying it and dying or making the game unwinnable.
I do not need to unite everyone if I can kill them instead (and I have to power and resources to do it). I have puppets to command. What I want to do, after I am tired of grinding levels, is fight everyone until I am the only one left. At that point, I achieved my victory condition of sector domination (or annihilation).
Since missions are preset and give you unskilled ships (i.e., low-level play conditions), the main thing I want from the campaign is powered-up ships that can drive like greased lightning and can destroy enemy ships with ease.
Of course, for that to be satisfying there would have to be lots of alternatives than combat to effect things, which we don't have yet.
Oh sure, that would be good. I just hope combat remains one of the most useful options. Currently, food runs is the best way to progress, and that is much less fun than combat (aside from extra skills to play with when I do get to fight).
There are some mechanics that can help to keep the challenge up in a sandbox game. For example, in the total war series, if you are too successful with conquering land, your AI opponents will start to team up and fight you together.
Oh, yes! I want that once I become an existential threat to all factions. Just because I want to play god of war does not mean I do not want to fight other cosmic horrors. I enjoy extremely high levels most in Starsector. Low, unskilled levels are the least fun for me.