You might want to exercise options before a new priced round (series B, C, D, etc) or before an S-1 filing. Yes, this exposes you to some adverse treatment (AMT for ISOs, and the risk of paying income tax on shares that later crash or become worthless), but it also establishes an ownership date (for the LTCG holding period) and a basis (which will presumably be higher in the next priced round or IPO, even though they're illiquid now.

(And as kalkin observes, if you're leaving the company with in-the-money options.)

Well, it is not uncommon for options to expire after you leave a company if they are not exercised. So if you take a new job and don't want to throw away your options...