Did someone say WidgetSense? Google is playing around a system called Google Gadget Ads - an ad unit that's actually an interactive widget.
Here's what it isn't: it isn't a way append ads to existing widgets, although ultimately that's what widget advertising should be about, in my opinion - something like PhotoSense/Britepic for Flash widgets. Here's what it is: you pay me to put your Gadget on my site.
It's basically a more interactive AdSense ad unit, allowing advertisers to use flash apps, videos, real-time feeds and transaction capabilities within the ad. As a publisher, you embed some code on your page and the advertisers bid to fill that space with a widget. Based on coverage by Neil Kennedy, it seems that advertisers need to develop their own Google Gadgets in the standard format, so there's nice integration across the Google properties. Pricing is either CPC or CPM, and publishers will be able to track performance through Google Analytics - yet more integration with other Google services.
The change is more profound than we can imagine. Gadgets are less concerned with getting users to click through to a site, and more concerned with making users interact with a brand in situ. Interesting times.