Google has laid out some more info about how they are tracking click fraud and ways to exlcude sites and even IP addresses for your Adwords Campaign.
http://adwords.blogspot.com/2007/07/whats-new-in-world-of-invalid-clicks.html
Update: Google has dedicated this webpage http://www.google.com/adwords/adtrafficquality/index.html to the fighting fraud issue.
