Memory overrun blows Arduino chip?

The method that I've run into involves an interaction between the bootloader, the sketch, and WDT RESET/Auto-Reset
but it didn't modify any of the fuses.
For example, if the code enables the watchdog and allows a watchdog to occur, the older bootloaders
would now be hopelessly in a continuous reset as they didn't properly handle clearing the watchdog
registers properly. So once a WDT occurs, it occurs over and over again.
Depending on the bootloader, even an external (auto-reset) would not get out of this situation.
(powerup reset would but then depending on the bootloader and the sketch, it might immediately
fall back into the WDT situation if avrdude was not immediately run before the sketch started
after a powerup)

From the Atmel 328 manual:

Note: If the Watchdog is accidentally enabled, for example by a runaway pointer or brown-out
condition, the device will be reset and the Watchdog Timer will stay enabled. If the code is not
set up to handle the Watchdog, this might lead to an eternal loop of time-out resets.

When I wrote a sketch that immediately set the watchdog timer to the shortest possible value in setup()
it became very difficult to get another sketch uploaded. While it was possible, by powering up the
board and immediately running avrdude from the commandline, I found it easier to simply upload a
new bootloader using the ISP interface. While a new bootloader was not needed, when the bootloader
was re-written, it had the side nice effect of removing the offending sketch.

At one point, I offered a patch to the bootloader fix this "bug" well as another needed source code only
patch to allow the bootloader to actually be built on the new AVR toolset that was shipping at the time
a couple of years ago. It was rejected in fear that it would break the bootloader in some other way.
(I ran it for more than a year before I switched my boards to optiboot)
The newer optiboot bootloader does not have this issue.

Now in terms of actually bricking a chip, there was case where a certain load on the RESET pin caused
a ringing on the reset line and the voltage was high enough that it tripped a high voltage erase and clobbered
part of the fuses. But this was not dependent on a sketch but more what was on the reset line, like a particular
shield etc...

--- bill