Would it be a good idea to advertise a site on there?

I'm kinda afraid to advertise somewhere because I don't know that if some of those sites are spamming if mine will become associated with it and therefore get my site penalized as well.

Should I ask them to put a nofollow on the link to my site, not advertise on those sites at all, or not worry about it and just let them put a regular link to my site and advertise all I want anywhere?

Instead of advertising on other sites, why not pursue having rankings on SE's for keywords in your niche? This is something that you could do without spending that much. Build quality backlinks (directories, blogs, forums, social bookmarking, etc.) using your your keywords as anchor texts - you can start by participating in similar niche forums and utilizing the forum signatures. This helps in SERP and you get to target the right audience for your site at the same time

Yes I am going to optimize my site for search engines, but I'd also like to place some free ads on some sites as long as search engines don't associate me with spam if there are other ads on there that are spam.

In other words, if a site has links to spam, and links to your site, your site wouldn't get associated with spam would it? Surely not. I'm probably being too paranoid. lol

I'm talking about those free advertising sites that you simply place the url to your banner etc. and you can have your ad there for free. The site is nothing but a list or links to sites most with banners.

Are you referring to top sites?

Yes I'm referring to those top sites. Are they worth adding a banner to or would they get ones site penalized by search engines?

It doesn't seem like search engines have a problem with them since those "top" sites(sites with a long list of "top sites") are often on the first page of results. I think they'd be ok to place an ad on, but I just know if anyone else knew anything about them or had any experience with them.

Topsites are useless, they usually don't provide a direct outbound link to your site, it goes through a script.

That's fine. I wasn't expecting to get a search engine boost from the links being on topsites. I just wanted to know if it could actually decrease my ranking in search engines.

If not then I'd want to place a banner in some topsites for the extra traffic I could get just when people click on the banner.