Two words.

LEEEEEEROOOOOOOOOOOOY

JEEEEEEEEEENKIIIIIIIIIIIINS

Eat that, professor.

Araydan has hit the nail on the head: its all about how the criticism is delivered.
I was in a guild where the raid leader would yell, and scream, and pitch a fit when someone messed up (like asking me to OT in DPS gear and then get pissed when I couldn't take a hit) and people dropped like flies. Pretty soon, the guild dissolved and reformed.

The new guild leader was unrelenting and brutal when it came to calling people out after a wipe, but he did it in a way that made people want to come back after every wipe and keep trying until our time was up.
He never screamed, or yelled, or cussed us out. He calmly explained our mistake, gave us the chance to improve on it, and if we were still messing up, then we were out and a sub was brought in.

I work in the software industry, and I definitely see a lot of parallel between raiding/guild-management and business/people management. It makes a lot of sense, since both environments are innately artificial and both involves getting groups of disparate people to work together towards a common goal.

As far as raiding, it definitely depends on what the goal of the raid is. I would say that the very first thing is to establish upfront what the expectations are, both for the raid leader as well as for the raid. You would expect different degrees of performance from seasoned raiders (who regularly visit elitist jerks and bosskillers) versus casual players.

After expectations are clear, I think it's perfectly valid to politely and firmly let people know that they need to step up. As for feelings getting hurt, I take the position that everyone else in the raid is here under the assumption and hopes of clearing the boss or instance. For someone to under-perform, or feel indignant about being called out, is an insult to the other 9, 19, or 24 people in the raid who are giving it their best and are being held back. Taking constructive criticism is a much an important social skill as being able to give it.

Finally, I think it's important for the raid leader to get positive feedback as well, and sometimes regardless of whether the raid on-the-whole was successful. Was the problem lack of dps? Okay, acknowledge that and think of areas to improve, but also complement the tanks and healers who are holding aggro and keeping people alive.