I have proof Google rewards keyword spam...I placed 2 different webpages on my website, both with relevant content, same number of images, keywords and text content. The only difference was the links were as follows: mydomain . com /keyword/keyword.htm After only 1 week this page gets PR1, while... mydomain . com/keyword.htm gets PR0. Goes to show if you keyword spam Google rewards you. I built backlinks via 5 unique articles submitted to ezine articles for BOTH pages, so everything was equal!
google and other search engines for that matter evaluate the url when assigning relevance. Putting a keyword folder name in there is an old old trick, but it still works, because it still generally implies relevance. A page only has the one url, so if you target it specifically like that, the chances are it actually IS about that topic. It's hardly 'rewarding spam', it's accepting that urls matter.
but the keyword was also in the page name, so having it as a directory results in it showing twice which is not so good for the user experience. Weird that google would reward this....