Thanks for all the responses. I was curious about who would chime in since doing nothing in my fact setting would be (in my view) far less egregious than actions freely admitted to on a daily basis on FT, Fat Wallet and many other places. Note that I was not curious about what I should do (see below) but about what mix of folks would respond.

It turned out that just about everyone responding took the high road, advising to report the error. Yet there's people who buy on one credit card to earn miles, then return the item on another to avoid returning the miles. There's folks who repeatedly sign-up for bonuses available only once to new customers using multiple email accounts. I wonder why those folks didn't respond to my question. Maybe the word "Ethics" in the title scared them off. It seems to me that some of this stuff is a fine line, some is a matter of personal opinion but some of it is just wrong. Why is it that people who wouldn't dream of shoplifting don't think twice about other, equally wrong behavior?

When I spoke to the hotel, I told them about the error but they said they can only add points, not make corrections. I then called the program itself and the CSR, somewhat amazed at my call, said that they would not initiate a correction and that they would also not make a correction to my account even if the person who stayed at the hotel found the error. I also had a line on who that person might be, so I sent them an email but I haven't heard back yet. I have the CSR's name and I won't bother with further backing. If their agent says to enjoy my good luck, I'll do just that.