Won't this let people know the address is good?
or is there some reason I'm not seeing hat I should bounce spam?

Bouncing SPAM doesn't indicate the address is good, as mail to an incorrect addresses bounce as well. One reason to not bounce messages is what is known as Backscatter. Most SPAM messages have spoofed addresses in the FROM: field, so if you bounce the message the user that was spoofed gets flooded with bounce messages from mail he didn't send. That user then may end up reporting you for sending SPAM (unsolicited bounces) causing you to get blacklisted.

There's a big difference between rejecting email and bouncing email. Rejecting email is the acceptable way of handling undeliverable email, bouncing email is the one that is causing problems.

Rejecting is done during the SMTP transfer when the sending and receiving servers are talking to each other. If the receiving server rejects an incoming email, then the only one who will get the rejection is the sending server. If it's a legitimate email that server should notify their local sender with a failure report. If it's spam then the sending server is probably a bot, and it's not likely to be listening. Rejections can be temporary (a 4xx code, like "mail box busy") or permanent (a 5xx code like "no such user"). A great deal of spam would disappear forever if it was simply rejected during the SMTP transaction when "no such user" is appropriate.

Bouncing is done after the receiving server accepts the email and the connection with the sender is closed. So the email has to be sent somewhere instead of simply rejected. The only way to determine where to send it at this point is to look in the headers, normally the From or the Return Path. TQMCube.com and Spamcop now consider misdirected bounces as spam, and they are treated as such. At least some other anti-spam organizations feel the same way. If your server is bouncing spam you will eventually get listed as a spam source.