This is a short MS extension I've coded up as a direct respond to Greystripe's intrusive advertisement. (How intrusive it is? Download CubesFree and you'll know. C'mon, why not use AdMob?)
Ad Killer is a simple extension that hooks on the NSURLConnection class. It checks the URL against known criteria, and if it is determined as an Ad (or a bad site, whatever), it will convert the URL to a bad site that will always fail the request.
Unlike methods using .hosts, Ad Killer has the potential to support Regular Expressions, and thus AdBlock Plus filters (except element blocking). And unlike AdBlock by CocoaMug, it can work with almost all applications* (not just MobileSafari) and it is free.
Currently Ad Killer is not packaged for release, but you can check out the code at http://code.google.com/p/networkpx/source/browse/trunk/hk.kennytm.adkiller.
*: AdKiller will not work on Cydia, or any setuid apps that does not support MobileSubstrate.