Bearshark,
I am unaware of any such limits.
Some random thoughts, for what they may be worth
Not sure if this is really the advancement chairs call. Merit Badge Counselor is a district position. Even if your troop has a counselor, others might benefit. If anything, I would hope an advancement chair would want more people involved.
The more options available, the better. More opportunities for adult association with people they may not have worked with before.
Philosophically, I hate to see parents who want to get involved turned away. It can create bad feelings, which you have observed.
I might be tempted to talk to the advancement chair to see where he is coming from. Is he confused about the rules? Or is there another reason for not wanting this person involved in this role. Might be a back story we don't know about.
Prof