Ah, whoops -- there is a second setting in there under merge, which is the default behavior when there are changes. It's set to disallow, but has options for warning (seems like should be the default at worst), or allow. Changing it to allow, it works as expected.
I guess it doesn't bother me too much, because my team size for this project is going to be under a dozen people anyway, so it's relatively straightforward to manage. But I'm curious why the defaults are not to just allow, frankly. Is there some sort of risk of work loss that is possible that I am not used to?
When it comes to doing an update in SVN and there are local changes, the absolute worst thing that would happen is that there's a merge conflict that I then have to resolve prior to doing something else. But that's not really a scary case, and it's moderately rare (mostly just affects people who happened to change the same line as someone else, or are both working on the same binary file). Either way, letting them know sooner than later that there has been a conflict is good.
For example, I do recall a time a couple of years ago where two people edited a prefab extensively at once (and now in Plastic this would be a "you should have checked that out first" situation, but that doesn't exist in SVN). But let's suppose we have two someones using plastic who both want to edit the same prefab, and neither remembered to do a checkout first (shame). I'd think that a merge failure message sooner than later is actually just what the doctor ordered, because otherwise you're risking them continuing to work and lose more and more. Already at this point, they're going to have to figure out what their changes were, then write those down, then probably make a copy of their working version just in case, then revert the conflicted version to be what is on the main branch, then check that out, then recreate their additions and create any new ones, then commit their changes and check it back in when they do.
I can think of a couple of places where the most effective workflow would be blocked by the Plastic SCM defaults right now: having copied their local prefab so they can do side by side comparisons might count as pending changes that block the update function; and the initial update would not actually work to begin with, so they wouldn't find this out until they are ready to commit.
In general, I tend to encourage staff to do a full update prior to doing any commit, so that if there are merges that happen, they get all of those prior to trying to send data (and thus potentially impacting others).
There must be a reason why these are the defaults, and I'm worried it's because there's some sort of data loss in the merge conflict case. If that's not the case, then I submit my example above for a great (and real) use case of why Allow (or at worst Warn) make for a better default for your users. In my organization, I can just instruct people on alternate defaults when they install things, but I'd also just rather contribute to Plastic as a community since it is newer on the playing field.