I think MThiessen was right with his comment about "thin content" sites. I also think there's confusion here about what "click arbitrage" is.
When NYTimes.com advertises its travel section on vacation-in-elbonia.com, that isn't "click arbitrage," because the NYTimes.com travel section has real content and isn't just flipping traffic (even though it does run AdSense ads). PPC is merely one source of traffic, and not the most important one.
When Bubbas-barcecue-recipes.com attracts traffic via AdWords, YPN, etc. and sells clicks via AdSense, the situation is a bit greyer, because Bubba may not have earned the kind of "TrustRank" and/or authority status that NYTimes.com has earned through years of accumulating inbound links from other trusted sources. Still, Google probably has formulas in place to gauge whether Bubba fits an "arbitrageur" profile: Is he buying clicks low and selling them high? Does he attract organic search traffic? Is he using original content or boilerplate content that's on a zillion other sites?
In the short run, publishers whose revenues have come mostly from MFA ads are could be hurt--or maybe not, for reasons that were discussed earlier in the thread. In the long run, a rising tide of advertiser confidence should lift many (if not all) boats.
A more important question is whether "grey area" sites like Bubbas-barbecue-recipes.com may get swept up in the anti-arbitrage/thin content net because they're buying traffic through PPC ads. If I were Bubba, I'd be worried about the risk of collateral damage--especially if I depended heavily on PPC traffic to earn my AdSense revenues.
[edited by: europeforvisitors at 7:54 pm (utc) on May 25, 2007]