dollars to doughnuts.... er, rice cakes (sorry Greenguy), he is seeing hosted freesites with your affiliate code that you have sprinkled throughout your listings.
And those sites use sponsor content -- thus, the confusion. Being a non-linklist person, I have seen quite a few mentions against using sponsor content and can see how someone would infer that using sponsor supplied content would make getting accepted quite a bit more difficult. I don't believe I ever saw that anyone stated that it was blatantly impossible.
I do recall a thread a while back where someone had taken a hosted free site and copied it to their hosting and changed the links and there was mention that they were declined. But I don't recall anyone saying that they were banned for doing that.
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