Are road brakes designed not to brake too much? All of my cycling fellows always told me that it's much more difficult to fully stop a road bike, compared to a mountain bike, because "road brakes just don't work so well" (and perhaps because of skinnier tires).

When I started to ride bikes with road wheels (700x23) and dual-caliper road brakes, quite a few years ago, I noticed my brand new Tiagra brakes were lame compared to even MTB cantilevers, and I ended up replacing the pads by v-brake ones (glad I did).

But I have also noticing the relative danger of "cascading braking" in a tight pack, which can cause severe rear-collisions.

So my question is: are road brakes designed to have less braking power than MTB ones, in order to avoid peloton accidents or whatever? Or is it incidental? Or yet, actually only the lower-end ones don't brake so well?
I'm not sure "designed" is the correct word, evolved comes much closer. Current dual caliper brakes actually stop a lot better than previous single caliper sidepulls. There has always been a compromise between weight and braking power. The designers have focused on how light they can make a brake that stops "enough". I don't think there has been any effort to deliberately reduce the performance. 

Older centerpull brakes such as the MAFAC Racer actually compare quite well to current dual calipers, but they are much heavier and more complex to install. Designers switched
to sidepulls to save weight, but then compromised braking performance.

The problem is that you can only do so much with a rim brake without risking locking up the wheel. You get the most effective braking by stopping just short of the point of locking up the wheel. ( This is called modulation). Given the nature of rim brakes it's very difficult to increase the braking force while still maintaining sufficient modulation. This is the advantage that disk brakes common to MTB provide.