http://labnol.blogspot.com/2006/01/google-adsense-inventory-for-banned.html Check this out.. I think it says it in the TOS, but this guy has pointed out they do serve the ads?
Just because Google accepts ads in its ADwords program and shows them in the sponsored section of the Google SERP it does not allow publishers to target these same ads. I believe this is true because of the lack of control over the content of the publishers site you do not need "illegal" content being associated with Google and since most of the illegal content comes from websites that focus on the forbidden list of Google Bad things. Makes sense to me.
Regardless, you still can't use AdSense on Casino or Gambling sites: Site Content Site may not include: ... Gambling or casino-related content
Google, like all corporations, is a hypocrite. It's strictly a case of, "Do as we say, not as we do" when it comes to sexually explicit/gambling/other taboo subjects. They will gladly take your money to advertise such things, but they don't want you to have a site targeting it. Always keep in mind that Adsense is a business first and foremost; didn't you hear about Google squashing freedom of speech for the sake of getting a foot in the Chinese market?