This is from someone at the Google AdSense team on WMW:
I know some publishers are concerned about the use of the word blending here, i.e. using the background colour of your page as the background and border colour of your ads, and the ad text and links in the same or similar colours as your text.
As several publishers have mentioned, blending is permitted. However, as stated in our programme policies, publishers should not rely on deceptive implementation methods to obtain clicks, as in the second scenario on the blogpost, where a group of links has identical colours and line spacing to that of the ad unit placed in the middle of them.
The key is to never confuse the user into thinking ads are content.
*Thread title edited for clarity.