Underestimating time needed happens all the time in the software industry. It probably is worse in the gaming industry where publishing deadlines often get set 6 months or more in advance, but I still get hit with guaranteed release dates for customer commitments at my job now where I've put in ~100 hour weeks to fulfill (telecommuting many of these probably saved my marriage, as I would work 4 hours after my wife went to bed). Still, it is nothing like the 160 hour weeks in the office for a game release crunch (and no, that isn't all work - I slept on beanbag chairs in the testing room and they catered in meals, but at some point you're just so burned out and stinking of feet that you need a night sleeping at home and a long shower).
I can't think of any instance where I've cost a project, but I'm sure they exist. OTOH, I did have a workaround for a $5 million dollar contract where the customer was going to reject our Linux port due to a bug I found and reported. The developer and pubs person assigned the defect were laid off after 9/11 so the defect slipped through to the customer. Fortunately, I overheard a sales person talking about it and supplied the workaround, saving the contract.