This article makes it clear that Mahalo is in many ways quite similar to another questionably ethical startup, Demand Media. Here's the fascinating Wired article:
Disclaimer: As with most other massive content plays which have large audiences of unsophisticated Internet users, I indirectly subsidize Mahalo through AdSense expenditures. To the tune of probably over a hundred bucks last year, but I don't have my numbers in front of me. Like I mentioned in my blog post earlier today, they send great traffic (i.e. it is cheap and converts well) because my ads are the content on their pages.
That is disquieting to me in some ways. I could ban them and start chopping off heads from the Demand Media hydra in my AdSense account, but that would consume vast amounts of my time and just cost me money.