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Is this an ethical practice? Is there any chance of being banned for using this technique?
Will it get you banned? Probably not (well maybe in Yahoo), but it certainly is against the TOS of virtually every major engine out there.
It's an OLD technique that I would never recommend. You may get some short term gain, but in the long run, you will likely regret it.
Sure, there's a fair chance - those are framed doorway pages. If you have a long-established "branded" domain, you need to consider whether it's worth the risk with that domain.
You might ask them to show you other sites they've used this technique on, and see how long they have been that way, and how long they last.
See Quality Guidelines - [google.com...]
I don't know if this technique can be detected automatically, but it certainly can be detected by your competitors -- and discussing it here has made it fair game for an algo tweak.
Because sites are different, everyone has to do the risk/benefit analysis for themselves. Some say the phrase
"business ethics" is an oxymoron, and others don't.
Jim