Shadowbane, an MMORPG that was pay-to-play, and eventually went free, implemented an ad-sponsored idea. Way it worked, is when you started up the game, you exited the game, and everytime you died (but only once every...10 minutes I think) you saw a minute long commercial. Made the game free, kept the company doing ok, win-win in my eyes.
I like that idea, but I don't think I'm in favor of in-game stuff near so much. Context would be very important, but I wouldn't mind seeing posters on walls for Coke if I'm shooting baddies in a city; it might help quench my thirst.