Mulch is essential to preventing weeds from competing with the tree's resources and prevents the drying out of roots. It can also insulate the soil to protect the tree from both the heat and the cold. However, when more than a 2-4 inch layer of mulch is applied - roots are likely to begin growing into the mulch volcano and not into the soil.
Worse, when the mulch is surrounding the trunk of the tree and the flare of roots at its base, moisture collects against the bark, weakening the tree and making it more susceptible to infestation and disease. In addition to the moisture collecting around the tree's base - where it shouldn't, the high mound of mulch can also cause water to run off and away from the mulch volcano and actually result in the roots drying out rather than remaining moist.
The other big no-no is the constant replacing or addition of mulch. While new mulch may look more aesthetically pleasing, mulch should not be added to the pile if it will cause the mulch to be deeper than 2-4 inches. Equally as bad is removing the old mulch in favor of new mulch, as the organic breakdown of the old mulch is providing much needed nutrients to the tree. Old mulch can be turned to renew it's look and to prevent the upper layer from hardening and repelling water.
Proper mulching requires that you keep the mulch away from the trunk and the root flare at the base, spread the diameter to at least 3 feet and as much as 10 feet for large trees, and never pile mulch above 4 inches.