It's not against the rules to bid on domain names as search terms, however they often get a low Quality Score, but not always.
It is putting the domain into the ad text that is the problem - but only if the domain has been reported to goog by a trademark owner.
I bid on a particular domain in google and the owner contacted me asking me to cease. I asked them to take it up with google as they were the ones allowing the practice. So if you want the ads with your domain to stop you need to contact google but be prepared to prove that you have the business name /domain name trademarked.
As far as I know, is it not allowed to use Brandname in Ad-text, unless the brand-name is for example "hugo boss" and you sell "hugo boss" stuff.. Using a competitor as a keyword is Okay, as long as it's not writting in your ad text.
A would-be competitor was doing this with my domain name, even though his clientele and what he sells are different from mine. I guess he just figured he'd scoop up some traffic. This was a while ago, but as I remember I was able to say that he was using a term in his ad that was misleading, since the ad did not point to my domain or offer any info or whatnot about my domain on the landing page. I also contacted the individual and told him to remove my domain name from his ad or I would contact AdWords and he would lose his AdWords account. After whining some, he removed it.
I reported this violation to Google over a week ago and they appear to have done nothing. Today I contacted the site owner and using HRoth's suggestion I mentioned he was placing his future Google advertising in jeopardy.
That did the trick, he claimed it was a 3rd party who placed the ad but within a matter of minutes the offending text had been removed.