DanaC: I saw a comedian talking about a kid getting a huge trophy for participating in a baseball league. He asked the kid what it was for and the kid says "because I participated." The comedian says "that just proves your mom dropped you off: hey kid, good job getting out of the car."
Certainly we want to encourage kids, but I think that encouragement should come with a degree of honesty, such as "well, you know what Johnny? Your talent doesn't seem to lie in baseball, but I noticed a great drawing you did the other day. What are you interested in pursuing? If you're having fun with baseball by all means, continue...you can also invest some time in your artistic skills as well."
Childhood is a time to find out what kinds of things spark your interest, what sort of things you're good at: for a child to never be allowed to fail is not doing them any favors, imho.