@ Alika -
If I were in your position, I would hold off on the WordPress update, until AFTER you correct the ads issue. At least then, you'll be dealing with one set of issues at a time, versus wondering if you lost relevance due to ads, wordpress, or something else.
Matt stated that the algo learns or re-ranks on subsequent visits, so I would suggest removing some of your ads first, let your traffic recover, then deal with the updating at a later date. Maybe, wait a full 2-3 months AFTER recovery, before muddying the waters with a site makeover...
Thats just me though.