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FYI, I'm not a Bush supporter (vote Kerry!), but I do not believe he has broken any laws.
The act of Congress basically awards the USOC a trademark on the word "Olympics" and the logo. That's why it talks about use "for the purpose of trade, to induce the sale of any goods or services, or to promote any theatrical exhibition, athletic performance, or competition." It basically short-circuited the normal process for obtaining a trademark and the normal boundaries for trademark laws in order to protect this particular word and symbol.
But owning a trademark (or being officially decreed the owner of the OLYMPICS mark) does not mean nobody else can say it without your authorization. You are free to use any trademark you want in a purely factual context (e.g., Toyota can say "our cars get better gas mileage than Nissan cars" and Range Rover can say "in 2003 there were 12,345 Jeeps sold in the United States" (though I don't know why they would)). The only rules in the traditional advertising context are (a) the statement must be accurate (or at least you must be able to say you have evidence to back it up), and (b) you can't imply an endorsement when none exists.
The first rule does not necessarily apply in political ads. I'm not just being cynical - rule (a) applies b/c if the statement isn't true, the FTC can sue the company for false advertising, or the competitor can sue for libel, etc. Those rules of commerce don't apply to political ads.
I don't think that the Bushies' use of the word "Olympics" as described above crosses the line. They are making factual statements about who is in the Olympics.
This analysis is separate, of course from my personal feelings about tact and class. I happen to think it a little tasteless -- but not egregiously so -- to use the olympics in a political add, and I think it rather tasteless to not pull the ad when the people depicted protest.
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