I have created iphone bluetooth chat application using following tutorial:http://www.devx.com/wireless/Article/43502/1954.
It works well.But when i turn off wifi and bluetooth both in my pc and test with iphone simulator with another pc which has also turned off its bluetooth and wifi. It still works fine and both peer discovers each other.both pcs are conneted through LAN. Can anyone tell why this happens?
I guess the simulator just performs discovery using any available network connection. I very much doubt that the simulator was using the Bluetooth of your PC for peer discovery.
As you say, "Both PCs are connected through LAN". Well, I guess that is your answer. Discovery is being done via LAN.
If you want to test actual bluetooth usage scenarios, I guess you have to use an actual device.