GlobalMax - 5:01 pm on Apr 5, 2011 (gmt 0)
I've seen Google AdWords suspend an ad campaign because it used a registered trademark of another party (and presumably that party complained).
Regarding domain names, I agree that your competitor's practice is very sleazy. Google may well agree too, even if it's not a trademark issue, so I'd suggest filing a complaint.
Just in terms of trademark and domain name background information, however, the USPTO's Trademark Manual of Examining Procedure (TMEP) states, "A mark comprised of an Internet domain name is registrable as a trademark or service mark only if it functions as an identifier of the source of goods or services." [tess2.uspto.gov...] Generally, adding the URI protocol or TLD to an otherwise unregistrable mark adds "no source-identifying significance" and so is not registrable. IANAL.