I'm very stingent with how I spend my money. I need to consider if it's the best 'bang for my buck' as the saying goes. I don't really mind ads in apps if they aren't in an obvious place that are prone to accidental clicking.
If there's an app I like, use often and I like how the developer has been handling my inquieries and/or updates on the apps, I paid/doate for the ad free version (ex LauncherPro, mini info, and folder organizer). I also buy apps for features that are not in the free ads version (ex doc to go, system panel and note everything)
I think developers should always have two versions of their applications, one free and one paid. The paid one SHOULD have some features that is not in the free ads version. I think, 'I'm paying you for your work, I don't want something that I can get for free.'