What has being an affiliate got to do with Google?
Speaking as a merchant, it is absolutely none of their business.
Now if a merchant does not want to permit PPC advertising directly to their website then that is up to them.
Likewise, it is the merchant's prerogative if they wish to restrict the keywords that you may use in a PPC campaign.
Both of these may be conditions of the private relationship that an affiliate has established with the merchant. They are employed to act on the merchant's behalf by whatever means are permissible under that relationship...and if that relationship permits PPC advertising directly to the merchants website then fair enough; it has nothing to do with Google.
Google are not a party to that relationship; and therefore have no right to go placing restrictions based upon it. Indeed they don't even define "affiliate" for the purposes of their terms and conditions.
Am I missing something?
This enables Google to skirt their own rules about one ad per merchant per keyword, provide an explanation about why more than one ad for a merchant may appear for a specific keyword search, and let enterprising individuals get into Internet marketing.
It also benefits Google because it provides an easy way for anyone wanting to learn the ins and outs of AdWords without having to have their own website. More people familiar with and enthusiastic about AdWords is a great thing for Google and will ultimiately lead to more AdWords consultants/sales reps for Google - not necessarily working for Google but as SEM consultants.
IMHO, the policy Google has on this benefits everyone.
I'm not to sure what the Overture policy is but I think (from seeing some of the listings) they make you identify your site as an affiliate site if you build your own affiliate site and drive traffic to that site as opposed to sending traffic direct to the merchant site for which you are an affiliate.
If that's the case and I'm not sure it is or isn't, it doesn't make much sense to me because a website is a website whether it has affiliate links or not. The one exception to this may be if you are bidding on brand names and driving traffic to your affiliate site. By labeling the listing as an affiliate site it should help to alert the searcher that while they may have typed amazon.com in the search box and clicked on a paid listing that they are clicking through to an afiliate site and not the real amazon.com site.
I see your point; but Joe Average probably doesn't even know what "aff" stands for; so given that its only an "insider" thing; it can just be done away with all together.
Google's rule about only one ad per account still holds.
A merchant could even employ 2 different agencies to promote their website; and have them both end up in the same column of AdWords without any need to waste copy space with "aff". Those ad agencies could even work for the merchant on a commission basis; and all of a sudden they are "affiliates" to every intent and purpose of the popular definition; yet would pass muster with an Adwords reviewer without need for the "aff" in the copy.