That's the rule, as far as I know. Any kind of formal writing should not have any contractions in it. Formal writing would include journal articles, papers for classes, some essays, and most non-fiction books.
In dialogue, and sometimes in narration in fiction, it's okay to use contractions because that's the way people speak. Some essays also lend themselves to more informal writing. You can't really completely accurately reproduce natural speech in fiction; it would just be too difficult to follow. And if you don't believe that, interview someone, then transcribe the interview word for word, pause for pause, fill sound (like "um" and "ah"). You'll see what I mean.
In fact, doing that - recording a conversation (with all the participants' permission, of course) and then transcribing it is a good writing exercise. It's helpful to get the feel for the rhythms of different speech patterns, the word choices people use, and similar issues involved in writing dialogue.
Oh, and I'm going to move this to the workshop area.