Good article at Wired which describes the issue in clear detail. It goes on to conclude as I did earlier, that the real solution is participate in cost per action.

Wired News: Google’s Click-Fraud Crackdown

Google is testing a new advertising model to deal with click fraud: cost-per-action ads. Advertisers don’t pay unless the customer performs a certain action: buys a product, fills out a survey, whatever.It’s a hard model to make work — Google would become more of a partner in the final sale instead of an indifferent displayer of advertising — but it’s the right security response to click fraud: Change the rules of the game so that click fraud doesn’t matter.

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