I have used brands in my domains in the past on numerous occasions. Only once has a sponsor threatened legal action over it (NastyDollars).
I never understood the stance of sponsors not wanting affiliates to push their sites using their brands in the domain name.
However if the affiliate was also pushing other sponsors via your keywords I could understand the desire to stop it.
At the end of the day Google is always going to rank tons of sites for your brand name keywords. In the current state of the industry many of these will be tube sites, forums hosting the pirated content, password sharing sites, and more.
Wouldn't you rather have an affiliate out ranking all of these sites that can actually HELP your business? An affiliate pumping up your site and sending the sales to you actually saves these sales for you. Had they not been there, the surfer would have likely found your content for free, thus not turning into a sale. The other sites are the ones who will actually HURT your business.
You may think that they are passing over your domain, for the 2nd spot, giving the affiliate a percentage of the sale is hurting you. However if they skipped past your domain in the first place, they would be doing it whether or not the .org was ranking 2nd, and again clicking on a site that would likely hurt your business and not convert into a sale at all for you.
As mentioned previously in the thread also, whether the brand name is in the domain or not, you will have other affiliate sites ranking for the term.
Personally if one of my sponsors tries to threaten me for the usage of my domain when I have spent a lot of time working on their promotions, I will drop promoting the sponsor all together, thus hurting their sales.
So from my point of view I think it would be in your best interest to just let them continue promoting the way that they promote.
