IMO, age and ability is key here. If these are kids that can play - ie, have a basic handle on all shots, then this practice is only doing their kid harm.
On the other hand, people put kids in matches before they can really play, usually before they can serve consistently. This leads to the kid getting discouraged. You can make practice competitive while learning the skills, and once you can actually play, then play matches. Then when they lose, they can learn something besides "I double faulted 3 times every game".
If this is a case of simply quitting because the kid is losing - shame on them.
"More Sureshs, less Maxima for a better TT." - Power Player