Fuck it's not that hard for Google, we do ad buys on the display network and here is how it works:
1. We place our conversion code on our pages (duh)!
2. We track conversions.
3. We see a lot of clicks with no conversions from a web site, we exclude the website.
4. Gee maybe, let's take a wild guess, if a web site starts getting banned by a long list of adsense advertisers, then the whole adsense publisher account get reviewed. And I'm sure velocity of the exclusion placement is taken into account as well.
Again, if you guys start to think of Google as an intelligent broker with a collection of reasonably intelligent clients on the other side, then it's easy to come up with right answers.
Take for example, PPV: Okay, the guy is driving a lot of traffic to his site. Well if I am selling blue widgets and there is blue widget copy in the content of the web site so my ad is placed there, AND the PPV ads attract people who are really interested in blue widgets, then you may have a winning combination.
BUT if you are really PPV ads with red dohickeys, then you may have a problem. And if you are running PPV with pictures of hot naked chicks and there is no sign of blue widgets anywhere, then you WILL have a problem.
To summarize the adsense advertiser (read: Google) doesn't give a fuck where the traffic is coming from, he just cares about the quality of the traffic.