Last week, I reported that Google said blending AdSense ads is not allowed, well, it seems like I was somewhat wrong. At least, we all were, on some level.
AdSenseAdvisor updated us in the WebmasterWorld thread (see post number 3617913). AdSenseAdvisor said, in short, "blending is permitted." Yes, there is a "but" in that statement. AdSenseAdvisor added, "publishers should not rely on deceptive implementation methods to obtain clicks," he/she continued, "where a group of links has identical colours and line spacing to that of the ad unit placed in the middle of them."
Basically, Google doesn't want you to "confuse the user into thinking ads are content," and thus tricking them into clicking on the ads, as if they were content.
So, yes, blending is allowed, but like I said initially, it is how you go about doing the blending.
Forum discussion at WebmasterWorld.