...Often there is no way for the consumer to tell if it's a paid advertisement or not. Especially for those normal surfers who are not as immersed in this stuff as we are....
Hmmmm. Like many Google adsense/adwords advertisements in many ways.
In fact, I remember on one of Google's adsense help pages where they talk about the advantages of 'blending in' adverts in certain cases.
I never buy links, mainly because I don't like the smell of it all and much of what I do is academic rather than commercial.
But I really don't see much difference between buying a link to affect popularity and buying an 'advertorial' in a prestige magazine. In the print media you can sometimes ven get an editorial piece printed, if you wine and dine the right journalist.
The online paradigm is different, so the methods are different.
But it's not a moral issue, of course. Google is a private company and can do what it likes. Whether this approach will bring more 'relevant' links than, say, MSNs approach is debateable.