Is it possible that the way in-text formats have been executed are to blame for the annoyance factor? What I'm trying to say is, perhaps it is not that in-text advertising itself is a negative experience, but that up to now, the way it has been done has not been the best user experience and that it may be possible to do it better.
The reason I say it could be done better is that in text links are classic old school hyperlinks. When you come across a hyperlink within a body of content, if the link is of interest to the site visitor then it will be followed. Whether the link is commercial or not, if it is of interest to the site visitor then it will be clicked on. If classic old-school hyperlinks are acceptable to the average site visitor, then is it possible that the problem with in-text advertising up to now is that the links may not have been interesting, too intrusive, or not relevant enough?
Here is an example of in-text linking that works. It's not uncommon to drop an affiliate link to a product page from within a review of that product. Those links tend to do well in terms of conversions and CTR. So if those affiliate links work well and are not annoying then it may be possible that in-text linking itself is not a dead end and should not be disregarded. The Yugo was a lousy car, but that doesn't mean we should abandon automobiles althogether right?
Could it be that the issue is not with the advertising format itself but with the execution of it?