You are misinterpreting that statement. What they are referring to in the above quotation is when search results are altered due to change in advertiser dollars. Kind of like when Yahoo used to have top advertiser links above the normal search results, and undifferentiated from the content.

Google, as a result, made a separate, distinct ___location for advertisement links. Because they separated the ___location of advertisements from the search results, they preserved the integrity of the search results.

This structure has not changed, as you can clearly see sponsored links are separated from search results: http://www.google.com/search?hl=en&q=pizza

The example conflict of interest they used was a top-rank page that advertisers would like to bury. That problem is not solved by keeping ad links separate. Further (and this is what makes the link interesting), if Google were to start altering page rank to serve advertiser interests, it would be difficult for anyone to prove or even know they did it.

FWIW, there are plenty of people who don't grok that the top-of-results ad placements are ads.

They are labeled as ads. Is "grok" really the world you were looking for?

"For me, search and ads are almost the same." -- Google executive Marissa Mayer, 2007.

a case can be made that advertising at the correct moment in time for a particular individual is information. you want a new mattress, open the pipe, mattresses galore, buy, close pipe. the key is to figure out the when and the personalisation, search is the first to get close to it (and it's still not perfect - the next thing i'd like to see is trimming but i assume that'll take that semantic web thing i keep hearing about)

Followed by:

"Hey Sergey, take a look at what these guys at Overture are doing..." - Larry Page

The quote is from appendix A:

http://infolab.stanford.edu/~backrub/google.html#a