I wouldn't touch a typo of my competitor. I think that's a recipe for grief if your competitor finds out. If all of a sudden it's fair game to take traffic that is explicitly looking for them, then what will they consider fair game for you?
You are absolutely right: it is not a tactic I would recommend to others. This particular business, however, is very competitive, and people compete with generic keyword domains, not branded domains. There are dozens of these typo variations of my domain, for instance, which others registered before I saw the need. So I guess (and hope) this competitor will learn to live with it, just as I have.
I've bought drops this year that ranked just fine on new, related content.
That's a great tip. It's good to know that part of the strategy still works.