Is Google saying not to use Mod Rewrite (because I sure as hell wouldn't use it if search engines didn't exist)?
By all means, use Mod_Rewrite. Their guidelines aren't perfectly clear because if you talk to Google reps they prefer you use techniques that make it easier for spiders to crawl. The key words are "intent to deceive" - you're not being deceptive so go for it.
There is an argument for using mod rewrite to benefit users, it easier for them to write down, put in emails, etc. Ask yourself, if it didn't help SE rankings at all and if it was as simple as clicking one button and getting perfect looking hyphened word URLS, would you click - I would.