Do you think this is a good or bad idea? Why?
It's definitely an interesting idea and my initial gut feeling is that although rep points are ultimately really, really meaningless and tell little about actual expertise, there's nothing really wrong with doing things this way. Earning 500 points in those tags will be at least some indicator of a fundamental understanding in them.
You just want to evaluate every student's actual contributions as well - to prevent instances where people really just answer the dumbest trivial questions and eventually gain the required amount that way ("rep whoring"). You want to watchWatch out for track records that have a lot of downvotes, and inspect those more closely.
There is always the risk of actual malicious circumvention attempts like sock-puppetry - but that's why you look at the actual contributions, too, and threaten consequences if cheating is detected, right? Plus, the SO system is there to fight malicious stuff anyway. If one of your students gets suspended or loses their account altogether, you know what's up. Make sure you write down their user IDs before the whole thing starts so they can't just create new accounts when the old one gets burned.
In general, I find this an interesting idea and as long as your students aren't complete imbeciles, I don't see how unleashing them on the site could do harm to either side.