Yes, what they did violates immigration law in Thailand. And the comments of a senior immigration official don't change the law; they just indicate that at least in that region the enforcement is likely to be rather lax.

But there's really nothing to get bent about. No locals were out of a job. They lived there as tourists so paid a lot more into the local economy than locals, including a lot more taxes in the form of VAT on all their purchases.

The only real issue is that they were at risk even if they didn't sense it, because what happens now and then is someone gets pissed off (usually another foreigner) and rats someone out. Then the police see an opportunity to collect an extortionate "fine" before they get deported.