I've been using adwords since a little before 05' and I'm pretty happy with the results. I haven't worked with a small product on their though. I imagine it is much harder when your selling something at 24.99 and under.
I'll throw in my two cents and assume that the OP has lost a considerable amount of money through adwords. I did loose money at the start, but i've made it back and then some over the last few months. It all comes down to research, testing, more research and more testing.
I use several advertising techniques, including adwords. I must admit, at times i find adwords frustrating but it works for me. Adwords has grown over the years, and so has its interface. I do groan every time there is a change and update to adwords. At times I just don't want to deal with it. If I was making millions, I would hire someone to take care of all the policy and updates for adwords. I do think think adwords is becoming more of a vehicle for large advertisers. I'm a small fry - adwords told me so. It use to be you could get phone support no matter the size of your adword account. No more...phone support is reserved for the big boys.
You are looking at a small % ROI. Your budget is probably not big enough to see the small % in ROI and/or your keywords may not be targeting the right audience.
You need to understand adwords just like any other advertising effort. Simply signing up and throwing something together will never pay of whether that be online, radio, tv, newspaper, mags and so on. Sure people get mad when they don't make a million off of a $100 adwords account BUT come on, what did you really expect lol.
How long did you even utilize adwords campaigns? You cant just jump in and expect to start seeing a ROI or even some type of revenue. It takes time and strategy unless you outsource to other companies for the job.
Not sure I can agree either. Adwords 'can' work for certain niches. It's all about monitoring ROI with PPC. If it doesn't convert after variations and tests - trash it. If it does work - optimize. It's all about ROI.
There will never be a law suit everything is written clear and you agreed to it when you signed up. remeber it is a bidding system so people will only bid within their ROI if it cost more than 1 cent per click then thats because somone is making money out of it and that including the 3% incorrect clicks.