ClickZ has details of a report release by Consumer Reports WebWatch which claims search engines are still not doing enough to identify sponsored search results.
Of the top search engines, AOL Search, Google, and Yahoo! Search Marketing were given good marks for disclosure, but showed minimal change over the year before. Ask Jeeves and Yahoo! Search were downgraded for making headings less visible, and removing hyperlinks to disclosure statements. MSN Search was the only major search engine to show improvement, largely because MSN discontinued its paid inclusion and content promotion programs, giving them less to disclose.
I think that most of the search engines do a good job in identifying the difference between the paid and organic listings but I know a lot of people are still confused as to the difference.