Suppose I ask a question to an criminal register: http://server/demographics/party/{partyId} and that person is not known on that system. Is that an error? Isn't it a good thing?
When returning 404, it is an error code, Restlet has implemented it as a specific URL cannot be resolved to a route to a server-resource (a handling class), an erroneous situation.
In my opinion, if a system understands a call, and is able to process it without errors, it should return 200 (HTTP-ok), and it should return the information: "We don't know this person".
What is the best thing to do?
There's nothing wrong in returning a 404 status code. It simply means "you asked for a resource, and it doesn't exist". If it did return 200, it would have to somehow return an additional status code telling you that everything went fine, but the resource couldn't be found. That's unnecessary, because 404 already means exactly that.
A status 500 is normally returned to mean "something went wrong, I can't tell you if the resource exists or not". Now if you returned a 404 to mean that, this would be a mistake.
Whether it's a good thing or not is not doesn't have anything to do with HTTP or REST. And BTW, if the register was a file containing the survivors of a disaster, you would probably find it bad to not find the person you looked for, unless maybe if the person is your mother in law, unless you actually love your mother in law. (this is meant as a joke, for those who don't find it obvious).