i've chatted (via e-mail) with google on this a number of times and the response has always been the same: they allow affiliates to use an affiliate encoded URL that directly links to another website, as long as the destination website is noted in the ad.
so, what they won't allow is www.peteandbobswebsite.org and a direct link to www.widgets.com or www.widgets.com with a link to www.peteandbobswebsite.org. (not a lot of folks attempting THAT, anyway.)
google seems to think that as long as the URL shown accurately represents the landing page, it's OK.
this accounts for why there are often half a dozen ads all showing www.widgets.com as the URL.
it's confusing (at best) to google users; i think it's crazy and deceptive.
and i truly wonder what the orders to clicks ratio is for ads like those... i think the whole point of effectively being an affiliate is to "pre-sell" the buyer so that you're sending highly qualified traffic to the vendor website!
of far greater concern to me, as an affiliate myself, are ads by other advertisers (for my keyword categories) that do not disclose their affiliate status.
i've reported these over time to google ...with mixed success. they always thank me and say they'll look into it... but most of the ads are still running and a few do so well that they are consistently bonused into premium placement.