This thread was interesting for me. I don't use the word naughty, despite never having made a conscious decision to avoid it.
I only realised this when DD was in nursery, and sometime used the word herself. I realised some people believe in "naugtiness" in the way they believe in "evil", whereas for me it was just a non-specific term to describe anything a parent doesn't like.
I think Jollyroger has give some good examples of how it could be used to control, and I know my DD would be sensitive to it, as she has reacted strongly to being called naughty by other people. Even though she hasn't learned it from me, she would be upset and ashamed to be called naughty.
On reflection, I think I don't use it for the same reason I don't hit DD. It's overkill. I don't need to do it to get her to behave. (OK hitting is also illegal, but I wouldn't do it even if it was legal.)
If DD were harder to control, or inclined to worse behaviour, may I'd be desparate enough to use it. Just as bad enough behaviour might incline me to hit her, if it were legal to do so.