Google frowns on 'blending' AdSense ads [source]. It's unhealthy for advertisers and frustrating for your visitors:
"As you can imagine, users who click on ads that they think are publisher-created content may lose trust in your site and decide not to return in the future. It's important to keep their interests in mind, as well as your own."
It's worth clearly segregating ads and content because it makes your content more legible and your ads clearly identifiable as adverts. You don't want to trick people into clicking them; you want people to click them when they're genuinely interested in what's on offer.
You asked whether you should mix ads into your content or keep them in the sidebar. I say do both. Smashing Magazine, for example, has successfully mixed in-post ads with multiple banner ads in a dedicated sidebar, but they still maintain a distinct segregation between ads and content, and that's probably what you should strive for if your goal is to increase clicks without losing visitors.
As to whether you should adopt a 'modern' or 'outdated' design, it's often best not to follow trends, but instead to understand who will be visiting your site and design it around their needs. If you're designing a site for a major bank, for example, it might be better to shun the grungy vector splatters favoured by many 'modern' web designers and adopt something more traditional instead. If you're designing a dating site for young adults, they'll probably expect something a little more 'modern' in its appearance and functionality.
