Depends on the breeder. I don't see why someone is withholding Limited papers until after a spay unless they are concerned that the person is going to try and change the status on their papers (why I register the puppies for my people).
There is a box to check on the registration papers so that the new owner can send them in themselves, however I have heard of people whiting out the check - you would think that AKC would notice this but apparently they do not in some cases. Of course I trust my puppy buyers with the papers but I suppose not all breeders do and so in your friend's case I guess they hold the papers until the dog is spayed/neutered. Papers don't mean much to most people and are not needed for anything except competitions (hunt tests, obedience, etc).
Thanks. There are are few "strange" things about this puppy purchase. This 10 moth old puppy has a lot of tarter on her teeth. That was a red flag for our vet. There are some knee problems also along with other things that really make me wonder if she was fooled by this breeder. This is a lady that shows Westminster ... and has quite a few champions.