deterrence force[s] people to include the probability-weighted 
  cost of a jail sentence into their cost-benefit analysis.
  ... given the practical probabilities of getting caught 
  for many crimes, deterrence doesn't really exist.

I think the issue is less that the expected value is poor, but rather that most criminals, especially in the cases of crimes we care the _most_ about punishing (murder, fraud, etc), often are not rational.

Even if the punishment were immediate execution a-la Judge Dredd, we would still have people committing crimes, because they irrationally believe that they'll never get caught, or that what they are doing isn't a crime. Or, in some cases, are acting through emotion rather than rationality.