Unfortunately, Malik doesn't mention the one problem that Apple didn't think to fix in the first release of the App Store -- trial versions. One of the reasons consumers are blanching at the more costly apps is that they have no options to try them out first, and when people are offered a choice of free unknown versus a paid unknown, they'll always take the free option. If Apple could come up with a way to let users try before they buy (some developers, including iconfactory, have created two different versions of their own apps, which people can then upgrade to if they like the app), I'm guessing you'd see more people pay for the more quality apps in the store.
But even if not, Malik seems right (though even he admits we're all flying blind here, on only a month's worth of data and anecdotes). If the only app you can sell in the App Store is a free one, ads aren't a bad way to make up as much of the dev costs as you can.