google updated its policy on images next to and surrounding ads, its probably not advisable to have any images that are associated with ads.
Yes it goes against the TOS of Google Adsense . Immediate remove the "Advertisement" term above the adsense ads
earnmoneyonlinetips & amnezia - Wrong and Wrong. Google allows text next to ads just as long as it doesn't encourage clicks. Google also allows background images just as long as they are not bringing undue attention to the ads. Many top sites out there are using them (not the guy holding the board or yellow starbursts) Simple shadows and borders work wonders and look very classy when done correctly.
Have you'll seen the following post - http://www.problogger.net/archives/2006/02/17/designer-adsense-ads/ and as mentioned by ProBlogger, the Karen's site here - http://www.karencheng.com.au/ Karen is using background images too. cagintranet I started using your free images (like post-it note) as seen here. However, here's what Google said - So isn't that a no-no?
satishtalim - Problogger made my point, then Google turns around and mentions this. I feel that if the background is subtle then it should be allowed. an accept here or a shadow there does not bring undue attention at all to an ad. (Which, looking back on it, some may need to be revised and/or removed from my site in light of google's email response above.) As stated in my previous post, there are a lot of important blogs out there that are using background images. Google approved my site, and then mentions this to you.... ridiculous. I will be emailing google shortly to see what they say... again. Thanks for the update.