Rotten wood is like a cavity in your tooth. You can patch the cavity but without removing all the contaminated areas, the hole will continue to grow.
But, to just patch it, I really like Rock Hard. It is water based and will be stronger than the wood around the hole. When it dries, which is shrink free, it sands nicely and also takes paint well. Shrink free spackling also works well.
Get a chissel and gouge out all the decayed material and then fill it in.