I suspect I know the answer to this, but here goes anyway.
I have been optimising now for around six months and have achieved some impressive results. I’m always in the top 5 on all major engines for the most effectice keyphrases. However, for some keyphrases there is always a competitor (the same guy who will – with reluctance- remain nameless) who is always number one. On looking at his source code he has hidden a load of keyword rich text that is obvioulsy resulting in his high ranking. Can I do the same thing?
Al Leftwin, Bradford Hauliers

Like you thought – don’t be tempted to follow this practice. If you get caught by the search engines you may get blacklisted. If you do the problems in getting reindexed are colossal, as your competitor will ultimately (very probably) find out.
I have several clients who are always number 2 on Google ( several who are number 1 also!) and its for the same reason, we have done everything right except that there is a spammer in front of us. Its frustrating and very tempting sometimes to react.
The practices vary from hiding text, to having masses of dooway pages to ‘cloaking’ but the effect is the same – they have cheated themselves to number 1.
Console your self with the thought that the click through rates for positions 2 and 3 are not dramatically different than the number one spot and that, almost certainly, your competitor will eventually get his comeuppance.