I didn't see anything all that wrong with his business model, from what little I could tell just by looking at his site. I really don't think the AdSense is the problem there; he doesn't seem like the typical arbitrage site at all.
However, the way AdWords works, his site, pretty much by definition would have a hard time maintaining a decent quality score.
You've got three elements that have to be in near perfect sync with each other - the keywords in the adgroup, the text of the ad and the landing page.
With a dynamically driven site like this guy has, and with thousands of different types of businesses listed, it'd be more than three full time jobs just writing and managing AdWords ads and campaigns.
** Generic AdWords advertising doesn't work anymore. **
The whole point of quality score is that Google wants to make sure when someone clicks on an ad, he's going to have a pretty good idea going in what he's going to find when he gets there. This article uses the example of ball bearings - well, that would not be a good quality keyword for him, because his site doesn't sell ball bearings. It may provide listings for vendors of ball bearings, but it doesn't offer ball bearings. So the more proper keyword for him would be "ball bearing suppliers" or "ball bearing vendors"
If I'm looking for ball bearings, Google figures I should know ahead of the click whether or not I'm going to a place where I can actually get them, or I'm going to a list of other places that sell them - even if it's a very good, accurate list with reviews and rankings and everything. So his ad would also have to say that he has listings for ball bearing vendors, and not just the ball bearings.
I know it may seem like a nit picking distinction to some, but all my experience tells me this is the way it works, and until you come to that fundamental understanding where you can see the difference, you're always going to struggle with AdWords.
Which is also why I think the program has outgrown a large part of the market it was originally intended for (small business owners who could run it themselves)