In 2008, Google disapproved 25 million ads from it's Adwords program with an effort to reduce the amount of spam and click fraud. That number has grown considerably since. In 2011, Google disapproved 134 million ads, which shows the scale at which spam and click fraud is targeting advertising programs.
The rise seems to indicate that there are simply more spam and click fraud ads appearing within the Google advertising platform and Google appears to be improving it's ability to catch and stop low quality ads.
Although Google has been criticized for benefiting from distasteful ads, the company says that such advertisers don't lead to profitable relationships. Many use the introductory coupons provided to first time advertisers and never pay their bills at the end of the first billing period.
However, Google's system as a whole could suffer damage by supporting distasteful ads through a combination of bad consumer perception of the brand and the quality of it's content and an over abundance of misdirected and spammy ad content that reflects poorly on Google as a whole. One distinct problem that Google could find is an inability to contain such content if it opens the flood gates--or prevents it's growth within Adwords.