This seems like another good idea from Google although I am a bit wary of advertising for a few reasons. To be effective, advertising becomes intrusive, almost by its nature. If the click rates drop, will Bloggers start to make the ads more intrusive. Also advertising sometimes can skew content to the more sensational and perhaps more populist points of view because that can attract more readers. Look at the BileBlog.
On the other hand, having a blog that paid for itself would be nice too. It requires more thought.