Seconded. If $FEAR or $PHOBIA (or maybe $PHILIA too?) can be taken at chargen, fine. If my character has to be afraid of, say, spiders (despite averaging 1.5 hits to kill any of them, and being Poison Resistant) because Teh Devs Said So, then that’s a problem.
Rather than taking damage increasing the fear level, how about dropping an HP category (dark green/light green/yellow/red) increasing it instead? That way fights needn’t be completely one-sided in order to provide a morale boost.
(Simply being at red torso/head HP may or may not be worth assessing morale penalties, in terms of feedback-looping.)
Re LazyCat: Kill-chaining doesn’t seem that feasible unless you’re talking about someplace like a rat cave and mid-to-high melee skills, preferably Martial Arts. [KA101, having achieved HOLY SHIT! a few times in UT2k4, realizes that it’s a rush though.]