Google search rank penalties

Did you know that paid text link ads can sink your Google rank through a penalty imposed by the search engine giant? I didn't but David Airey found out first hand recently.His Google refferals dropped from 30% to 6% thanks to a penalty implemented by Google.The problem?Airey started to sell advertising on his site without adding the rel=”nofollow” to hyperlink adverts. This is apparently not such a good idea as Google frowns upon this in a big way. Advertising is allowed but the rel=”nofollow” is essential.Revenue via advertising is allowed by Google but the company is very clear about what is allowed and what is not:

Not all paid links violate our guidelines. Buying and selling links is a normal part of the economy of the web when done for advertising purposes, and not for manipulation of search results. Links purchased for advertising should be designated as such. This can be done in several ways, such as:* Adding a rel=”nofollow” attribute to the ‘a href’ tag* Redirecting the links to an intermediate page that is blocked from search engines with a robots.txt file

Airey has some great links on his post that will help to explain the problem and give you solutions. Money is still able to be made, but make sure you aren't destroying hard work on the SEO of your blog for a few hundred bucks.I am interested to know if this sort of "law" applies to javascript adverts or any other kind of advertising on a website? Anyone have any answers? Maybe The Unknown Soldier has some answers?