Romney's lying. He's not spinning the truth to his advantage; he's not hiding in a gray area between fact and fiction; he's just lying. The law hasn't been "gutted"; the work requirementhasn't been "dropped." Stations that air this ad are disseminating an obvious, demonstrable lie.
All Obama did is agree to Republican governors' request for flexibility. That's it. Indeed, perhaps the most jaw-dropping aspect of this is that Romney himself, during his one gubernatorial term, asked for the same kind of flexibility on welfare law that Obama agreed to last month. Romney, in other words, is attacking the president for doing what Romney asked the executive branch to do in 2005.