I don't buy the "stay away from adwords -> adsense or google will ban you" story. I can see why you wouldn't want to do it from a pure ROI point of view (since 2nd and 3rd tier traffic is far cheaper), but not because they'll slap you with the ban stick.
Lets look at this issue logically from Google's point of view. As far as they're concerned, only 3 things should matter.
1. End user experience. We all know Google is a real Nazi about this. If you have a straight-up MFA site, that pisses people off, Google will ban you from adsense regardless of your traffic source.
2. Conversion for the advertisers. If your site produces 10,000 clicks and none of them convert, it's a good sign that your site sucks or is MFA. Of course, only Google knows which sites convert well and which ones don't. In this case, it may actually be *better* to use Adwords for your traffic source because 2nd and 3rd tier Search engines suck donkey balls as far as affilate conversion goes.
3. Their own profits. Using Adwords certainly doesn't hurt.
On their part, Google has been spectacularly ambiguous regarding their arbitrage policy. My personal opinion is that they're alright with it as long as you don't do it too blatantly using thousands of Arbi 1.0 sites. I know for a fact that a number of people here on WF are doing Adwords -> Adsense arbi quite happily. Loads of people use adwords to drive traffic to their sites that just happen to have adsense. Where do you draw the line?
