Try searching Google for "News"

You will find Google's own ad for news.google.com at the top.
Currently, there is an unrelated ad for "Work at home, make $3000 per week" directly underneath their ad.

The same is true for "Local News", and "Maps". I am sure there are many others. Keep in mind that these ads cost Google nothing (or nothing more than the manpower to create them).

I know from first hand experience that they deactivate advertisers who fall below a certain ctr and cpc, even on those keywords with competing ads. To me, this sounds like a conflict of interest.

As a webmaster, does it concern you that Google is competing with their advertisers in this way?

I agree with you that Google should not advertise their own ads. However, this poll is already closed and I couldn't to submit my vote.

I have no problem with google using their own system to market themselves (I would). As long as they are not using the regular bidding system that is.
I dont think their ads are bidded for, only placed there.