Summary: the problem with Pascal's Mugging arguments is that, intuitively, some probabilities are just too small to care about. There might be a principled reason for ignoring some probabilities, namely that they violate an implicit assumption behind expected utility theory. This suggests a possible approach for formally defining a "probability small enough to ignore", though there's still a bit of arbitrariness in it.
This is just a complicated way of saying, "Let's use bounded utility." In other words, the fact that people don't want to take deals where they will overall expect to get nothing out of it (in fact), means that they don't value bets of that kind enough to take them. Which means they have bounded utility. Bounded utility is the correct reponse to PM.
This has nothing to do with bounded utility. Bounded utility means you don't care about any utilities above a certain large amount. Like if you care about saving lives, and you save 1,000 lives, after that you just stop caring. No amount of lives after that matters at all.
This solution allows for unbounded utility. Because you can always care about saving more lives. You just won't take bets that could save huge numbers of lives, but have very very small probabilities.