I have just wrote a blog post about this but basically using AdWords dynamic keyword insertion currently allows you to use trademarked terms in your ad text which should be blocked.
It seems to me that this is logic... Becuse google prevents YOU (the advertiser) from using trade marks in your ad.. BUT... the trade mark in your ad... YOU didn't place.. it was the SEARCHER who caused this term to show in the ad My 2 cents Tim
I bet that is not the case, if things were to be like that then every one would use dynamic insertion and target thier competitors and escape the law easily. But sorry, it does not works like that, trademark terms are not allowed at least in the title.
I agree, you shouldn't be allowed, but it does seem to be what's happening. Try searching for BMW, this is a trademarked term which is blocked when added as an AdWords title but it is appearing in 9 out of 10 of the ad's when I search for this. The only one which isn't using BMW in the title is autotrader which users b m w instead to get around the trademark.