Personally I use a little PHP image rotation script that I made with a tutorial on SitePoint (I forget the page, but I'll post it if I find it). It's not the greatest script really though hehe, I'm on the lookout for something better - ideally something that grabs images from a directory and uses them, instead of needing to be specified in the script.
For the images, I found a good supply of generic cool-looking images on www.sxc.hu (I only chose images with a no-restriction license). For me I went with more abstract type images, though some people choose things like nature or architechture, or something tied to their niche (though not product images, arrows, etc). I then made an image file in Photoshop the size I wanted (i.e. 45x45px), and dragged the images in as layers, resizing and moving them to a spot in the image I liked best. I then saved them each by toggling the layers off in order.
There's a plugin for WordPress called AdSense Beautifier you can use if you like. It's kinda cool, it uses the images I selected and prepared for my own AdSense (the creator of the plugin and I were talking on SitePoint) - so now I keep seeing the images all over the place since the plugin seems to have become pretty popular. Heh I'm glad I used only non-restricted images 
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