I've seen many premature problems with engines that have been badly lugged. Usually it's older people who don't seen to understand how to downshift when they want to speed up. I frequently see bad scouring on the piston skirts and resulting oil consumption.
Lugging is also not optimal from an efficiency/pollution point of view. High cylinder pressures and low RPMs mean a much higher chance of detonation. As a result carmakers tend to run a lot less timing in the 1500 heavy throttle range. A lot of them tend to richen up the mixture because that gives the engine a nice feel when you free rev it. This can be OK because it means if you stay in closed loop the car will learn a leaner fuel trim and run leaner than stoich for a few seconds after you return to normal driving - less so on newer cars.
If it sounds bad and feels bad it's usually bad. Lugging itself long-term will also tend to wear your rod bearings as it puts a lot of pressure on them for an extended period of time - and it's also the worst time to do it as at lower RPMs your engine has the lowest oil pressure. Some cars are much worse in this area than others.
Finally, fuel saving modes in your engine (such as EGR and lean running mode) won't come on at really low RPMs. For example a lot of the Mazdas and Mitsubishis the EGR won't activate until 1800-2000 RPM. (differs by engine/year/market)
-Michael
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