I can quite see the argument that #1 may be devalued by adwords on top of it, but as soon as I achieve #1 for my target key terms, the ads are going to get shut down.
We, the clients, pay either way. Either we pay google via adwords or we pay for our time or that of a SEO to get ranking in the SERPS. They are called "natural listings" but none of this is free!
Is it now a question of whom you would rather be paying?