Paying for a flight and not boarding is way more ethical than the Airline selling you a seat that doesn't exist (overselling is super common... ever hear them ask for volunteers to take a later flight in exchange for a voucher? That means they sold seats that didn't exist).
Of course, the airline thinks it's fine when it is pulling the switcheroo but they get pissed when you do it back to them. As long as the FAA allows them to oversell flights, they should allow passengers to use hidden city fare discounts... it's only fare.