You would think, but I think they have always felt that a "tough on crime" mentality was necessary to inspire confidence in advertisers. This is a direct result of the imbalance of clout implicit to the long-tail/short-tail dichotomy of AdSense; Google packages a (relative) many dime-a-dozen content creators into a product (commodified ad space) which they sell to a (relative) few customers (advertisers). In addition, they can bet on content creators seeing the risk as low stakes (even though getting banned from a monopolistic ad network is anything but low stakes), while they can bank on advertisers seeing the risk as high stakes (which it is).

A better solution is not to use cost-per-click in the first place, instead relying on metrics that are harder to game, like unique visitors and page views. These are arguably a better reflection of an advertising space's value even without taking click fraud into account. That's what Project Wonderful did, and it has worked out well for some of its users, but its model is also more long-tail/long-tail, which I think hurts its profitability.

Proxies ruin this idea. There are entire ISPs whose web traffic originates from a handful of IPs.