Yes, I certainly use Wound Penalties for Soak Rolls.
The penalty should apply once, and by applying it to Dfn it affects ther size of the Dam to be Soaked later (with no die roll)
It would pain me, if the PoF wielding magus could only ever inflict Medium or Light Wounds on an opponent, and rack up a huge Wound Penalty for that individual, but never kill him. Even if said Wound Penalty is -30
But his inept grog could kill in a single blow, it doesn't even need to be a trained fighter. If the defender has -30 to Dfn then you'll easily end up with a huge Atk advantage and consequently a sufficiently large Dam.
Why should the 'downward spiral, from which one can't recover' only apply to melee (and missile-) weapons? Why can you only 'whittle down' the huge dragon and kill it with a sword but not a bolt of fire?
IMHO Wound Penalties apply once, to a single roll, either to Dfn or Soak Roll. So it only affects Soak when Soak is rolled.
I don't like the solution of having to wait for consequetive 1s, because the melee figher doesn't have to do this.
I don't like the argument of using the lesser spells to soften up, and then using the lethal spell as killing blow. Because the MR of the enemy doesn't get any lower from the lesser damage, so the lethal - and by extension higher level and therefore lower Pen - will not get any easier to pull off.
And I find it impractical to just have to invent higher level spells, because some enemies have really, really high Soak, and then even BoAF's dam of +30 is insufficient. Highest Soak I could find in a short search is the lindwurm in Through the Aegis/Collem Leonis. Fortified with the thickest scales turned out and the softer underbelly in/down it has Soak +25. Also Size +13, so "Dead" is achieved at 73+ damage. Assuming average rolls for both the spell damage and the Soak, reaching that in one hit seems unlikely.
All arguments about magical damage is based on 'dam +X' spells. All spells that deal a direct 'size X' wound are different. These ignore Soak, and by my interpretation also Wound Penalties, but pay for that advantage with the disadvantage of never being able to kill outright. Unless they actually deal lethal damage. No amount of Light Wounds in themselves will kill you. But eventually a papercut or thrown pudding might do the trick.