If the keywords they are targeting are very competitive then they will have to buy bidding high to appear where they want to anyway.
I think it would be very naive to think that the quality score would be impacted to such an extent by the keywords being in the domain names (other factors such as website authority and ad longevity have a much more important role imo).
Let's say that they appear in the top 6 for the keywords (through a combination of quality score and presumably high/unsustainable/aggressive bidding). If the content on their websites isn't good enough then the consumer is going to click through and leave. With an aggressive bidding strategy in place to achieve these high positions, it would most probably increase unqualified traffic, increase CPC and CPA, decrease CTS and result in an unprofitable ROI model.
In order to get the most out of PPC/landing pages imo the adverts need to be live for a while at a lower average position. Through work on the website and other initiatives to increase page authority and relevance to the ad, you could hopefully over time see your av.position increase without increasing costs. Then at this point I would find some sort of trade-off between how much money you're paying and what you're getting in return to find the most optimal average position.
Obviously there are a variety of other tactics for efficient bidding etc, but this is the basic approach I would take.
With regards to being penalised by Google; if you think there's a possibility of it happening, don't risk it.
