If they are not using Google analytics with auto tagging on, then one possibility is that they might be using keyword-level landing urls because it enables their tracking system to identify which keyword produced the click/conversion.

On the flip side I can't really say whether having a keyword landing url has any QS or min CPC benefits, I've achieved good QS and low min CPC on keywords that rely on the creative landing url.

"If they are not using Google analytics with auto tagging on, then one possibility is that they might be using keyword-level landing urls because it enables their tracking system to identify which keyword produced the click/conversion."

Surely they can do this via the reporting system though with a keyword report?

It depends on whether their tracking system relies on tracking parameters to be present on every keyword they buy, in which case that is how they track which keywords produced which conversion.

Talk to them, are they even using a tracking system? what does the keyword level landing url look like? does it even contain additional tracking parameters?

Deleting keyword level urls maybe necessary when a/b testing creatives however I would check first to make sure it doesn't knock out their keyword tracking abilities. In which case a workaround would be to alternate different creatives at different times of the day...

I've always used different ad variations to test different destination urls (so I can test conversion rates for different landing pages) but a friend has asked me to look at his account and the company doing his ppc has set destinations as keyword destination urls. I'm guessing for ease of use when using Adwords editor but any one got any other thoughts why they would do it this way? Pros and cons of doing it this way?

In every instance I've seen it's done to track conversions at the keyword level.