Don't blame you a bit for declining. Frankly, the vast majority of submissions I get with custom ns are pure shit anyway. Don't think I've seen the other specifics you mention...yet.
I think more hosts offering custom ns as an option though. I've been with the host where I have custom ns for a few years. It was last year when he moved me to new servers that he requested I purchase a domain to use as ns. I honestly don't recall what his reasoning was as to why to do it that way.
Earlier this year, I moved one of my servers to another host. While setting up that box, the host asked me if I wanted to use custom ns or use theirs...I chose the latter.
The fact that more hosts are offering this as an option may explain why we're seeing more of it in whois lookups. Still doesn't make sense to use the same domain for ns and for submissions.
Custom ns do make it more difficult to determine if someone is using freehosting. Dunno...we might be seeing the beginnings of a new submission rule on the horizon
