I should have been a little more specific....
The advertisers who's poorly targeted ads are showing are all also bidding on "Brown Widget Version 2", myself included. I know this to be true for at least 3 of the advertisers with poor ad targeting, because I follow this space very closely. Let's drill down a little more...
Say you bid on all of these keyword phrases:
"Widgets" = most expensive kw
"Brown Widgets" = a little less expensive
"Brown Widgets V2" = cheapest keyword, lowest volume
You structure your keyword list like this in an attempt to gain the most traffic possible and to cover expert searchers -> novice searchers. Your ROI goes up as the keywords and corresponding landing pages get more specific.
This entire strategy is based on the idea that, when someone searches on "brown widgets v2", Google will show the most relevant ad in your inventory.
This is not happening as often as I would like based on my keyword referral logging.
[edited by: jskrewson at 3:47 pm (utc) on Aug 10, 2010]