I like the no killing in setup time. Especially in that map with the trains.But I think the engy's in sudden death are a useful strategy point. If you're a few seconds from Sudden Death, you can change class so as best to survive the round, and that may include being an engy and setting up some sentries to fend off those pesky scouts.
I killed smoke yesterday during setup on Castle3.Stuck Sasha through the gate and fired. Was too funny, as he was taunting at the time.FYI, pyros and heavies can hurt people through the setup fences. I'm not sure if any other classes can, but I don't think so.
I think it depends on the map- sometimes there are small gaps where the flames and bullets can get through, but I don't think it's intentional.