Eschatonic - 9:30 am on Jun 28, 2011 (gmt 0)
Adwords click fraud detection has always been pretty terrible. They try to obfuscate it, but ultimately it's just not that good - it's overly-reliant on dumb algorithms and disinterested manual review, and they don't give enough control to the advertiser. I'd still rank it above Yahoo and Bing, but it's a fundamental risk you run when you bid on extremely competitive keywords.
Have you considered fighting fire with fire?