How far with integration can you go without potentially causing harm to your account? A blog here, http://blog.hostcule.com, has AdSense pretty much blended in, but is can they go further without killing themselves?
Well, you want to make the links look like the rest of the links on your site. As far as I know, you can put adsense link units in between your links. What you can't do is say something like "Please click this ad" or add images beside each ad unit.
You have to be very careful to make sure that your content won't be confused with the Adsense ads. See this page for an example of what not to do: https://www.google.com/adsense/support/bin/answer.py?hl=en&answer=136882 The Hostcule blog doesn't overblend like that, so it should be fine.
I see nothing wrong at all in the blog you mentionned, personally I would have optimized the ads a lot more!