I have seen so many example of inappropriate colour palettes applied to digital elevation models that it's good to see that people are thinking about this. There are some really good answers here too, but here is my opinion. I doubt that there is a universally good palette but rather a group of palettes that are appropriate for rendering elevation under different terrain and under different landscape scales. Another factor to consider is if you are planning on hillshading the DEM as well. These are my favourites:
(1) This is your standard elevation palette and is a good choice for a wide range of terrain and scales:
(2) When you're dealing with a slightly more mountainous terrain, you might want to have the palette start with deeper greens and end with whites. This is best if you plan on displaying a hillshade image transparently since otherwise the white may be interpreted as background.
(3) The following is a common palette used in atlases and I find it most appropriate for rendering smaller scales (i.e. large geographical regions).
(4) This palette progression is useful when you have subdued topography or when you have a lot of overlayed information and want the topography to fall into the background. It's also best when there is a hillshade image used as well.
(5) Finally, the following spectrum colour palette is useful when you don't want to use the typical green for valley bottom, brown for mountains relief. This may be either because you are dealing with a very large scale (e.g. a fine resolution DEM of a small area where there isn't relief at the scale of mountains) or where the DEM isn't of elevation but rather some other attribute.
If you are displaying the DEM transparently over a hillshade image (or vice versa) then an equally important consideration to the palette is the level of transparency. Compare the image above to the follow, both of which use the exact same palette:
How vibrant the colours should be compared to the hillshade tinting probably depends on the application (i.e. purpose of the map) and the other information that is overlayed.
You'll notice that I didn't include a greyscale image above. Here's the reason that I prefer not to render DEMs in greyscale: 1) you can't create a composite relief model (i.e. a DEM and hillshade image, as above) and 2) with all of the palettes used above people will automatically interpret them as being elevation whereas with a greyscale image, I know my immediate reaction is to interpret it as a satellite image or air photo...it takes me a moment to realize that it is in fact elevation. So unless it's an application where the map is going to be printed out (i.e. the editor has told me the figure must be greyscale) then I won't use a greyscale palette. And usually in the cases when it has to be greyscale, I'd rather use a hillshade image to convey the topography than DEM (if I have to choose one, I'll choose the hillshade).