Do sponsored ads affect serps of the advertiser

Over time, we're gradually losing SERP to megasites with sponsorship

[arnarn]

Does our site's sponsorship (Adwords, yahoo, overture, etc) of an ad affect (+ / -) our SERPs when the ad appears on a megasite (such as a***on, biz***e, dea**ime, p*****rabber, sho****g, nex**g.. etc etc)

We've noticed with a number of keywords / keyword phrases (the more competitive ones) that big megasites have pushed us downward in G's SERPS in areas where we're using PPC.

The megasites with our PPC adv / sponsorships now show up ahead of us in the SERPS for the keywords / phrases we're promoting. Granted they are BIGGER and have more clout, but in the past, we've ranked quite well (above) these types of sites. And, this change seems to be on the keywords / phrases that we're promoting.

Has G changed or tweaked its algo(s) over the last year in a way that favors the megasites (more so than in the past)

Is there an inherent risk in sponsored ads? We have never blocked such sites from our site or nor have we attempted to exclude such sites in our PPC campaigns. Are we being naive or should we be doing more to control such referrals?

What is the best way for a small site to compete against the "megasites?"