I just want to do some additional math to show why they wouldn't do this.
The hotel I work at has 320 rooms. 297 of those are available as a standard room reward. It's 60,000 points per night to book those rooms. In order to block all standard room rewards, my hotel would need to float 17,820,000 points each night. People typically value Honors points at half a penny each, so each night we would have to have $89,100 of points being used to block inventory. As there's typically a year worth of inventory available the hotel would need $32,521,500 held up in points for this scheme.
You suggest the hotel would then cancel the points reservations at the cancellation deadline. Ok, so now 297 rooms are on the market for 48 hours. Typical pick up in those 48 hours is 40-50 rooms on a busy night, 20-30 on a slower night. This means of the 320 rooms at my hotel I have now sold at most 75 rooms, and some of those would still be on points because people would book with points last minute.
Also holding reservations you have no intention of using is against the spirit of the Hilton Honors program and I've seen accounts closed for similar behavior. If Hilton noticed a hotel doing this kind of activity the accounts would be closed and the points would be gone forever.
Yes hotels get less money for a points stay (most of the time) than a cash stay, but they would rather the room be sold than not sold. This scheme is just a bad idea from top to bottom.
No, if I were to do a scheme like this I would book the rooms at a competitor's hotel and cancel last minute so they're the ones struggling to sell out and we look better in comparison.