deadsea - 2:35 pm on Jun 24, 2013 (gmt 0)
My latest thinking is that their algorithm looks at the ratio of "ads above the fold" to "amount of content on the page".
Their algorithm probably counts the pixels taken up with ads above the fold and divides that by the pixels taken up with content (text, image, and flash) on the page as a whole. They then take the average ratio of all your pages. If that average ratio is above some threshold your site gets hit.
I searched on Google for a search term with a 3 pack of ads above the fold and two of the right column of ads above the fold. These areas are roughly 556x365 and 301x188 for a total of 229K pixels of ads above the fold. The content column on that page is roughly 527x1711 for a total on page content of 902K pixels. So their ratio is 0.25 or 25%.
Since the penalty is triggered by the average across many pages, and that page is one of the ones on Google most loaded with ads, the ratio that triggers the penalty may be well below 25%, even possibly as low as 15%. Its not hard to do searches that return no ads at all.
There is also some component to the penalty for having ads but no content above the fold on many pages, even if pages have lots of content below the fold.