A bit late to reply to this one, but I recently went through this.
The affiliate decided to not allow their name in domain names (fair enough as its no doubt their trademark)... but went so far as to also not allow their name in page titles...
From what we were told the boss of the comapany who's products are on offer through the aff program did some searches at google and didn't like what he saw. So the company decided that everyone was ranking well for their name because of the domain names &/or the titles. They changed their TOS, and aparently aquiried all the domains (although we did use their name in our titles, we didn't have it in any domains so I don't know if or how they did this).
We've complied with the new TOS, its been a couple months now and we haven't noticed any drop in income from them.
But - where will it all end?
I can understand respected off-line companies wanting to; increase online revenue, protecct their brand on & off-line, and wanting to pay as little as possible for other people to do most of this for them (affiliates)... So, my guess is that respected off-line companies will begin to foster better relationships with selected affiliates, and avoid the 'click here to become an affiliate' style relationships.
Following this line of thought, this would result in off-line companies chosing existing sites to offer aff oportunities - putting an end to purpose built aff sites based on the products available through 'click here to become an affiliate' programs.
On and on and on... it will be interesting to see how it balances out.