I have run some more or less successful Adwords Campaigns. It is absolutely possible to make money with them, but it requires a lot of testing. You need to run different ads, at different prices, on different keywords. After 2-3 Weeks you can find out that while certain keywords generate more clicks, people who clicked on those keywords stay on the site much less long than those who clicked other, less popular keywords, etc.

As with Rescuetime I think it could be tough to make it worth while. The product is so great I believe you'll get much more bang for the buck with mouth 2 mouth recommendation. I've already told a couple about it ;)

Think about how much a (non paying) user is worth. (Multiply the conversion rate times the worth of a paying user). That number will tell you how much you should be paying per conversion from Adword Click to free user. I just checked, you pay an average of 10$ for the keywords rescuetime would be interested in. If you achieve a conversion rate of 10% for somebody who clicks your ad and then signs up to the service (which is pretty good in general), you're paying 100$ for a free user. You'd have to have extremely good conversion rates for this to be worth it.