I think there’s some issues with even talking about QTE’s in general. I think there’s a world of difference between the button slamming mini games in God Of War and the FMV continuance prompts in RE 4 (GoW has both kinds, actually).
The thing people seem to really rail against is the arbitrary insta-fail QTE, which seems to be on the outs already. This sort of QTE usually comes in the FMV format (or extended scripted sequences, which are essentially in-engine FMVs). Here, the problem is that the game lulls you into not being ready to press the button (with a cutscene), and then kills you and makes you lose progress if you fail to press the button. This is just bad design: punishment out of scale to failure, ignoring previously learned incentives (ie cutscene is reward, watch and relax). Also, many QTEs simply have too narrow a window in which you can complete them, which is basically a difficulty issue (ie lower difficulties should increase the timing windows).
QTE’s in general are just another tool that can be used well or poorly. An example of good usage is the old classic Die Hard Arcade, one of the first games to use them. It worked for several reasons: arcade gameplay (user never relaxes to watch cutscene as they do on home consoles), and lack of instant failure (failing the QTE generally led to harder path / more enemies, but never an automatic loss of life).
The GoW QTE’s for killing average enemies are also a good implementation. They’re (usually) not required, but give larger rewards if you do play them. If you fail, you lose a small amount of life, but otherwise continue to play. (The boss QTE’s, like Zeus in GoW2 are poorly implemented, as they have insta-fail consequences) In these cases, there’s a small risk-reward calculation with every enemy: take the time to play and chance of failing the QTE vs. a potential greater in-game reward. The time to play the QTE is part of the cost, since it does slow the player’s progress, possibly leading to a more tedious experience.
As per the OP, Mario RPG has it about right: (potentially) major reward for using them, but no outright punishment for failing them, just lost opportunity.
I think when some people talk about QTE’s they’re really talking about the on-screen prompts, as they can reduce immersion. I don’t see any good reason for the on-screen prompts. They’re a lazy, UI heavy solution for something that should be integrated more naturally. But the optional timing based micro-mechanics aspect of QTE’s is fine with me. I don’t think there’s really any way to evolve QTE’s short of eliminating the interface elements or integrating them with other mechanics, but in general I think they can still be used sparingly to punctuate slower sections of gameplay.