The google url will be the referrer.
BUT the referrer may even be blank if the user was logged in to google at the time.

You might want to try a different affiliate program or see if they have a better way of tracking things.

Is there anyway I can change it so that it will show up as http://mysite.com/go/affiliatename in the affiliate website so that I can get commission for sales generated?

No. They need to click the link from your site.

Thanks. Guess I have to create a landing page so that the user will click from my website instead of direct linking to merchant's website.

Doing a redirect with an adwords campaign is a surefire way to get permabanned from adwords, and probably banned from the affiliate program too.

Ideally you want to send them to a landing page which presales, try to get them to opt in, and then sell them on the affiliate product through email until they buy.

Yeah, as the other guys have said, a 301 redirect keeps Google as the referrer. An on page meta refresh redirect may work for removing google as the referrer (I forget in which cases it does), but meta refreshes are generally frowned upon because they look spammy.

If your AdWords link goes from http://mysite.com/go/affiliatename to http://mysite.com/ there is absolutely no issue with this. This is clearly stated in the display URL guidelines in Google - this is allowed as long as the user stays on the same domain the entire time and the domain matches your display/destination URL.

It would be the same as visiting the link directly. If visiting http://mysite.com/go/affiliatename directly does what you need, it will also work if you visit from AdWords.

Nothing more to it. Ignore all above misinformation.