I almost always just use Cavalry Reserve. I find I do just fine if I can send my cav out to scout the enemey location and then find a good spot of terrain to work with. Using the terrain to it's fullest, especially rivers is critical. The cavalry plays its part by locating the enemy and possibly delaying them. Having them fatigued to start can only hamper this so I've never found it worthwhile to use an other option than CavRes.
I tend to agree with you. I wonder how many other players do the same thing, since the penalty (fatigue) is pretty tough (even at low percentages, if it hits). Maybe the penalties for the other actions should be lowered a little bit somehow, to make them more interesting choices, but I understand the thought behind the fatigue factor being used.
You can still take the risks of the other choices, but if you get hit with fatique (whether) the mission succeeds or not, at least you can still use the cavalry for long range scouting purposes, which may be the designers intention. Just don't risk them in a fire-fight unless/until they recover from their fatigue.
You've GOT to hold them back!