Wow! A lot to reply to.
First, on what Randy is saying, I agree and disagree. I just feel that regardless if I can manage a decent ROI, I don’t want my ad dollars going to anyone who makes a career out of cheating me. I don’t like supporting it, I don’t like having to monitor it, don’t like going back and forth with the engines over it and I don’t like my numbers getting all mixed up…
I like knowing that when I stay on top of everything, I net over $1 a click and that some random spike isn’t going to put me in the negative for the day. I’d gladly pay more for that piece of mind (thanks Overture and Google).
I also think the more people know, the more the engines will be forced to play straight, because the free market isn’t doing it. A great example is GoClick, mentioned by a few others here as full of fraud (I’ve had some as well, but John was decent about sorting it out), was just sold for $12.5 million…
Like you said, you’re not defending the fraud, so I’ll leave off. 
Elizabeth, there are a lot of bots that hit your site (Googlebot, Slurp, MSNBot, ia_archiver and so on). Not all are click bots. If you can, direct your PPC traffic to tracking links whenever possible. This will help distinguish between normal traffic and what you;re paying for. Without knowing your logs, that’s the best I can tell you, but congrats on asking the engines what’s up!
The mention of GoClick reminds me of another type of fraud; bait and switch. A GoClick partner had an adult thumbnail gallery. At the top of each page it had links to “Gallery #2”, “Gallery #3”, “Gallery #4” and “Gallery #5”. At least one of the links was pointing to one of my finance pages and being charged as a click…