Webdiversity, I agree that's probably Google's rationale, but I wonder if they've made the right decision.
I'd expect higher precision in ad targeting to raise bidding competitiveness for the more profitable sites, and lower it for the less profitable. So you're right, people would place lower bids on less profitable sites.
Would the total revenue be lower? I don't know for sure, but I doubt it. I'd expect the increase in bidding level for the more profitable site to exceed the decrease for the less profitable site - in the same way that price rises accelerate as you go up the rankings (i.e. the difference between 1st place and 2nd place is typically more than than the difference between 2nd and 3rd place, and so on).
Not allowing us to specify targeting to a particular site must make it easier for Google to recruit search partners - but only the ones that think they're likely to be below average profitability, who by definition are less desirable partners. The ones who are above average profitability would benefit from this change, as would Google itself.
Allowing us to target by site would increase CTRs (as well as likely increasing average bid), because (clearly) few ads are equally suitable for OSDN and AOL.
Enough second-guessing for today. :)
All the best,