Stuborn Pipe Nipple

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Ok, I'm installing a new faucet in my tub (the tub has no shower) that has an attachment for a hand held shower and a wall mount. I removed the old faucet and the plastic bushing that converts the pipe fron 1/2 to 3/4 broke durring the removal process and half of it was stuck on the old pipe nipple. I tried cleaning it off. I used a wire brush, steel wool, screwdriver and hammer and discovered that the threads on the nipple were irregular and uneven and there was a notch on the bottom of it. so I descided to replace the nipple as well. I tried using my strap wrench and was unable to get it to budge, I bought a nipple extractor and it just split the nipple. Now I'm stuck trying to get the nipple off. Any suggestions?

Also the new faucet says not to use thread tape or pipe dope. I would like to know if that's what you guys would suggest as well and if so why not?

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Ok, so I got the nipple off, well, not really, I finally realized it would be a whole lot easier to just remove the elbow and replace it than to mess with that nipple. But I'm still curious about the thread tape. Is there a special reason I shouldn't use it on the spout? It's a Bathtub Shower Diverter Spout from ACE Hardware part #40012 or ACE825-32.
It says:
INSTRUCTIONS:
Read all instructions carefully before installing
* Unscrew present tub spout.
* If not already in place, install 3/4" or 1/2" pipe nipple to extend 1/2" out from finished wall.
If buying new nipple, do not forget to measure distance (Y) from finished wall to face of fitting inside wall. Add 1/2" for threads inside fitting.
* Thread new tub spout direct to 3/4" nipple. If using 1/2" nipple {Which I am}, attach 3/4" x 1/2" bushing (provided) to end of nipple, then thread new tub spout to bushing.
Do not use pipe dope or thread tape {that's not in bold on the package}

Does it mean not to use the teflon tape between the bushing and the spout or the bushing and the pipe too? and is there a good reason not to?