Originally Posted by WiredGuy

This is a touchy subject as its mostly up to the individual program to decide if they want to blacklist affiliates who buy traffic on their own site names. Generally though, it should be in your terms of service if you don't want this. Don't forget this affiliate did bear a cost to buying those hits and sending them to your site.

If I could suggest a middle ground compromise:
Update your ToS to not allow this type of bidding on any PPC search engine for exact spellings of your domains and pay the affiliate at the very least his cost to acquire the traffic upon showing you an invoice from Google.

WG