Oh, you're talking about someone applying for a job and using a reference from their current company. I always thought people used references from companies they don't work at anymore.
That said, if my reference applied for the same position as me and got it, whatever, more power to them, and I probably wasn't going to get it anyway. There are enough jobs out there for both of us, and I'd rather at least know that one went to someone I like.
(Solution 2 would be to have as many different references as possible and to give different ones for different applications, so that no one gets too annoyed by all the calls/emails).