The End Is Nigh for example is largely no lives, but it has special lives-based retro levels. Those are super frustrating and not that fun and I don't really want to play them, while the regular levels are incredibly addictive and awesome.
I guess the lives-based levels do challenge mastery a TINY bit more, but it's not worth the HUGE boost in frustration.
The other thing is that lives never provide any unique, unmatchable experience that might make them worth introducing into a design. You can get difficulty in so many other ways. I guess the 1 unique thing it provides is the "augh I need to do all that crap over again???" which is pretty powerful, albeit not enjoyable. But even that feeling has been explored in different ways that are pretty awesome.