That not only should be illegal, it is. Using somebody else's trademark in a way that could decieve a customer into thinking your product is theirs is like the definition of infringement.
But from what I've seen, the vast majority of ads that incorporate a competitors trademark are not doing that, and making it very clear they are advertising an alternative to the trademark being referenced.
This seems like a positive thing imo. A lot of adverts are formatted as "Tired of x? Check out Y!". I see no way this is infringement and its a net benefit to the world since it shows people new things without tricking them.
Yeah, there's lots of places where IP law is pretty dumb, but this is one of those spots where they struck a pretty good balance and things are mostly working well.
But from what I've seen, the vast majority of ads that incorporate a competitors trademark are not doing that, and making it very clear they are advertising an alternative to the trademark being referenced.