Well, don't forget that way back in the first season, we saw the coal rig with all the imprisoned Earthbenders (and given how many prisoners were there, and Tyro's comment at the end about "taking back ALL our villages", they were from many different places across the Earth Kingdom; so there's precedent for them taking prisoners instead of killing them off. The Earthbenders were being used as slave labor, so it's possible they were keeping the Waterbenders alive for much the same reason -- break them physically and mentally, and then if you ever need their special abilities you can haul them out of storage and put them to work. The genocide of the Air Nomads was a special case, since they were trying to eliminate the threat of the Avatar -- keeping the other benders alive I think shows some of their imperial arrogance, nothing less than the Avatar can truly be a threat to them so they will deign to keep their wretched prisoners alive...
As for Hama holding the villagers prisoner instead of killing them, well, other than the obvious excuse of "it's a Nick show and they're tying not to kill too many people", I can sort of handwave that -- after her own long imprisonment, forcing them to suffer in the same lingering way she did might seem a more complete revenge than just giving them a mercifully quick death.
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timeasmymeasure
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As for Hama holding the villagers prisoner instead of killing them, well, other than the obvious excuse of "it's a Nick show and they're tying not to kill too many people", I can sort of handwave that -- after her own long imprisonment, forcing them to suffer in the same lingering way she did might seem a more complete revenge than just giving them a mercifully quick death.