It would be difficult to argue logically that O'Brien intends for "Where Have You Gone, Charming Billy?" to demonstrate how combat builds character. Rather, O'Brien uses Paul Berlin's experience as a newbie in Vietnam to illustrate the fear associated with combat. Not only does Paul's fellow soldier Billy die from fright, but Paul is intensely afraid throughout the story. While Paul wants to make his father proud and desires to be able to tell him about his brave actions in combat, he finds himself worrying about what his dad would think of him if he could see how he responds to Billy's death. Paul's fear becomes so strong that he seems to lapse in and out of sanity (his inappropriate laughter, his ability to focus, etc.).
"Where Have You Gone" is a typical O'Brien story in that the author--a veteran himself--tries to show how strongly combat affects those who experience it. Those effects, according to O'Brien, are often related to fear, regret, grief, and disillusionment.