Are you indicating ads would make the system profitable because of major ad markets getting involved? I.e. industry standards like Nike and Ebay?

It would probably not get there right away, but that is the general direction to be heading.

What would the appearance be? Some ads are grossly invasive upon a user experienve. Or will it be like a banner at page top or boxes with gifs... ad potential is high, but hiw invasive it becomes will determine its value amomgst people generally avoidant of ads.

It would be 100% up to each UI to decide how to integrate the ads into their platform.

I would certainly be interested in advertising my projects, but if i know people have the abiliyy to simply turn it off, how likely am i to spend money in it?

The ability to turn on/off adds is unlikely something users will be toggling on a regular basis. They will for the most part either be on or off. As an advertiser you would only want to purchase ads from users who have ads turned on.

If there is a monitering application/tool that allows me to see how my ad progresses... amnt. of people by percentage and in what categories have turned off my ad, or how many have followed a link in my ad. This would incentivise me more to paying for the service.

Services like this are things that would likely get built as the need for them arises (after the system for advertisements is actually implemented and in place).

As a user, i would like to have a tailored ad experience. Perhaps the abiltiy to indicate with key words, hashtags, or by specific attributes the type of ads I see.

This is pretty advanced, but it could be done. Probably not going to happen in 'version 1' :)

I want to be able to share ads as well, or promote them further if i feel they are worthwhile.

Under the current proposal, ads are also posts, so you can always resteem them.