Another Pointless Example
For my next bit of narrow-confined-tunnel-advocacy, I direct your attention to the realm of science fiction; a genre as dependant on dungeons as fantasy. Take Alien. The cramped, claustrophobic settings were vital to the mood of the film, amplifying the sense of danger as the crew died one by one.
Ripley: Will you listen to me, Parker? Shut up!
Parker: Let's hear it.
Ripley: It's using the air shafts.
Parker: You don't know that.
Ripley: That's the only way. We'll move in pairs. We'll go step by step and cut off every bulkhead and every vent until we have it cornered. And then we'll blow it the fuck out into space. Is that acceptable to you?
Of course, were we to cut the miles of corridors and ducts out of the picture, the film could have turned out so differently.
Captain Dallas: It's somewhere aboard this ship.
Ripley: Yep. Right over there.
Captain Dallas: Oh, yeah. Okay, into the escape pods. Mother, activate self-destruct.
Yes, I know I'm exaggerating to the point that my examples are bloody absurd; that the story's more complex than I make it out to be. Shut up. Once you strip away my obvious bias I think you'll find I have a point; there is method in my madness. The point I'm trying to make is that limiting the heroes' options, placing them in a hazardous and confined environment, is one of the better ways of conveying a sense of tension; if they've any sense at all their players become more aware of their limitations, and work out ways around them -- they may even resort to teamwork in extreme situations!
Moreover, sending the heroes into the dungeon means they're plunging right into the heart of the enemy's territory. They have to fight on the enemy's terms. I hesitate to use the term 'at the GM's mercy'1 but while they're in that state the PCs experience adventure; challenge in its purest form. Menace can't very well lurk around every corner if there are no corners available for that purpose, can it? Where would the Daleks be if they didn't have endless corridors along which they could chase their hapless victims?