The Fundamental Attribution Error
Also known, more accurately, as "Correspondence Bias."
The "more accurately" part is pretty important; bias -may- result in error, but need not -necessarily- do so, and in some cases may result in reduced error.
A Simple Example
Suppose I write a stupid article that makes no sense and rambles on without any coherent point. There might be a situational cause of this; maybe I'm tired. Correcting for correspondence bias means that more weight should be given to the situational explanation than the dispositional explanation, that I'm the sort of person who writes stupid articles that ramble on. The question becomes, however, whether or not this increases the accuracy of your assessment of me; does correcting for this bias make you, in fact, less wrong?
In this specific case, no, it doesn't. A person who belongs to the class of people who write stupid articles is more likely to write stupid articles than a person who doesn't belong to that class - I'd be surprised if I ever saw Gwern write anything that wasn't well-considered, well-structured, and well-cited. If somebody like Gwern or Eliezer wrote a really stupid article, we have sufficient evidence that he's not a member of that class of people to make that conclusion a poor one; the situational explanation is better, he's having some kind of off day. However, given an arbitrary stupid article written by somebody for which we have no prior information, the distribution is substantially different. We have different priors for "Randomly chosen person X writes article" and "Article is bad" implies "X is a bad writer of articles" than we do for "Well-known article author Y writes article" and "Article is bad" implies "Y is a bad writer of articles".
Getting to the Point
The FAE is putting emphasis on internal factors rather than external. It's jumping first to the conclusion that somebody who just swerved is a bad driver, rather than first considering the possibility that there was an object in the road they were avoiding, given only the evidence that they swerved. Whether or not the FAE is an error - whether it is more wrong - depends on whether or not the conclusion you jumped to was correct, and more importantly, whether, on average, that conclusion would be correct.
It's very easy to produce studies in which the FAE results in people making incorrect judgements. This is not, however, the same as the FAE resulting in an average of more incorrect judgements in the real world.
Correspondence Bias as Internal Rationalization
I'd suggest the major issue with correspondence bias is not, as commonly presented, incorrectly interpreting the behavior of other people - rather, the major issue is with incorrectly interpreting your own behavior. The error is not in how you interpret other peoples' behaviors, but in how you interpret your own.
Turning to Eliezer's example in the linked article, if you find yourself kicking vending machines, maybe the answer is that -you- are a naturally angry person, or, as I would prefer to phrase it, you have poor self-control. The "floating history" Eliezer refers to sounds more to me like rationalizations for poor behavior than anything approaching "good" reasons for expressing your anger through violence directed at inanimate objects. I noticed -many- of those rationalizations cropping up when I quit smoking - "Oh, I'm having a terrible day, I could just have one cigarette to take the edge off." I don't walk by a smoker and assume they had a terrible day, however, because those were -excuses- for a behavior that I shouldn't be engaging in.
It's possible, of course, that Eliezer's example was simply a poorly chosen one; the examples in studies certainly seem better, such as assuming the authors of articles held the positions they wrote about. But the examples used in those studies are also extraordinarily artificial, at least in individualistic countries, where it's assumed, and generally true, that people writing articles do have the freedom to write what they agree with, and infringements of this (say, in the context of a newspaper asking a columnist to change a review to be less hostile to an advertiser) are regarded very harshly.
Collectivist versus Individualist Countries
There's been some research done, comparing collectivist societies to individualist societies; collectivist societies don't present the same level of effect from the correspondence bias. A point to consider, however, is that in collectivist societies, the artificial scenarios used in studies are more "natural" - it's part of their society to adjust themselves to the circumstances, whereas individualist societies see circumstance as something that should be adapted to the individual. It's -not- an infringement, or unexpected, for the state-owned newspaper to require everything written to be pro-state.
Maybe the differing levels of effect are less a matter of "Collectivist societies are more sensitive to environment" so much as that, in both cultures, the calibration of a heuristic is accurate, but it's simply calibrated to different test cases.
I don't have anything conclusive to say, here, merely a position: The Correspondence Bias is a bias that, on the whole, helps people arrive at more accurate, rather than less accurate, conclusions, and should be corrected with care to improving accuracy and correctness, rather than the mere elimination of bias.