I hear a lot of people say its bad to double pawns. 

But surely you can only get double pawns if you are taking a piece.  In this example its clearly best to double pawns. 

Apart from this silly example, when is it best to double up pawns? 

Your example says it all.

It's ok to have doubled pawns when doing so gives you an advantage that outweighs the doubled pawns (which is generally not a very big disadvantage in the first place)

Doubled pawns is a static weakness.  An increase in dynamic potential (for example active piece play) can compensate for the weakness.  In general, one static weakness is not a problem, but two such weakness are.  Two classic examples of dynamic vs. static is the Samisch variation of the Nimzo-Indian, and the Winawer French, in both White accepts a double pawn for the bishop pair.