Finding a profitable niche seems to be the biggest problem with adsense arbitrage, or affiliate marketing for that matter.
I took some time out to write this article. It includes screen shots, so I'm gonna have to point you to my new blog.
The article focuses on finding a profitable niche using only the google keyword tool and your brain.
It does not rehash buying low cost keywords and selling high paying keywords, but shows you how to exploit differences in ad position vs. cost.
Read Here
Feedback and diggs appreciated!