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Now we don't have that latter option, keywords go immediately to inactive and the ONLY way to get traffic to them is to raise the bids to what they say. Not only are bids higher because of this but now advertisers who had irrelevant keywords/ads and were previously disabled, now can be in the game to bid up even higher, so even if you can improve CTR at that point you will be paying alot higher than you would in the old system. This punishes good advertisers who worked hard to ensure their ads and keywords were relevant to users, now they are going to see their avg CPCs skyrocket.
It seems the focus on quality has given way to wall street pressure to keep that stock high.
I just hope AskJeeves and MSN have decent ROI for their PPC's to take a chunk out of the adwords and overture market share, they are getting too greedy.
I have a campaign where I refuse to go above 10c and have 300 or so inactive keywords (1% of the campaign total). They still show and deliver clicks, maybe not at the rate they could but I have seen many go active after earning a good CTR the hard way.
The new system has benefits too, I'm paying 2c for my most popular term in that campaign even though it is set at 5c, that's saving me a tidy sum.
I'd say that, for me, the benefits outweigh the frustration of learning how the new system works.