Ok, I'm not an attorney or an Aussie...so the nuances of this are probably lost on me.
Looks like it is against Australian law to include the name of a competitive company in your advertising. It sounds like Trading Post (Telstra) used a few competitive car dealerships names in their Adword buy, which apparently is a legal no-no over there.
While using the dealers names seem pretty sketch (the fault of whomever set up the Adwords campaign), I think blaming Google might be a tad excessive. The comment that "sponsored" links were confused for organic results seems like BS, especially since it is standard practice for all SE's.
If there are any Australian Attorney's that specialize in Digital IP - would love to get a take from the ground.