Sarah Bird at SEOMoz put together an excellent summary of the DSW vs. Zappos case. DSW sued Zappos because one of Zappo's affiliates created organic pages that targeted DSW terms, used DSW TMs in the domain names, used DSW images, but linked to Zappos pages (through CJ).
The initial Complaint was denied, however the judge gave DSW an opportunity to revise their filing. The filing effectively alleges the same things but with more support for DSW's assertions that Zappos and CJ knew of the infringement and 'monitored, directed or controlled' the abuse of the TMs.
Logically, it seems like this case should be tossed out. However, it will be an interesting and important case to follow as it has the potential to radically shape the interactions between merchants, their affiliates and their competitors.