When is it fair to fail a student on an assignment?

I’m in the middle of grading right now, and I have just given someone’s paper a D. One of my colleagues would almost certainly say that I am being too lenient and that I should have given the paper an F. I am by no means an easy grader; however, I am typically loathe to give out F’s unless a student neglects to turn in an assignment, resorts to cheating, or submits something completely unreadable.

The paper in question does not answer the question that was asked and betrays numerous misunderstandings of the class material. It gets almost nothing right past a few expository comments. Still, it is an honest attempt to engage with the issues—even if they are the wrong issues. The paper is clearly unsatisfactory, but a D seems to express that. Should I have failed the paper anyway?

Notes:
•The course I am teaching this semester is meant to be introductory and assumes no prior experience in philosophy.
•I am a teaching assistant (TA), not the lead professor for the course.
•The lead professor has instructed me that the average grade for the course should be a B.
•This is the very first assignment for the course.
•I gave copious notes on how to do better next time.