I know for certain they do monitor IP address activity. I Have a number of sites aimed at local community level all running adsense. But because, the majority of locals are on NTL/Virgin, all their IP addresses register the same as mine. It took a while for me to get google to understand it wasn't me doing the clicking etc. They finally accepted the situation, but have blocked my and most other local peoples IP adresses so my click rate is unrealistically low. Hey ho.