The first thing to understand is that an ISA is only a 'wrapper' around whatever is inside it. The ISA wrapper is supposed to keep things tax-free but Gordon Brown has changed that to a degree. So if you have a stocks and shares ISA then your capital is at risk, but if you have a cash ISA then it isn't.
Then again, there are offerings from various firms which enable yo to buy a stocks and shares ISA with no risk to capital. They work on the basis that if an index that they relate to (e.g. FTSE 100) goes up you get a proportion of the growth and if it goes down you get your money back after say 6 years. The risk here is that you might have got a better return from the interest on a cash ISA. It's your call.
And those who have lost money probably took the money out when it looked bad instead of staying with it and hoping it'll come good in the end. Can't blame them, but this guaranteed their loss.
If you buy an index-tracking ISA and the index goes down so does it. Many people seem to think that a tracker is safe whereas an actively managed fund is not, but it's not so. They both have their risks. It's reasonably safe to say that the better active funds outstrip trackers, even after their higher charges. But you can still lose money with the best of them if the markets go pear-shaped. There's not a lot they can do about it. The measurement of the best funds a couple of years ago were those that made the least loss!
With the exception of the years 2000 to 2003 it's fair to say that the longterm investor does better in a stockmarket than in a deposit account - the ISA version or not. Much of this 'betterness' is due to the reinvested dividend payments which can often be as high as interest in a deposit account. But the divis may go up and the capital value may go down!
Forget talking about ISAs. Decide what type of investment you want and then decide if you want to ISA it.
Rob Grahamn