Serving ads based on IP seems foolish when very, very few people have a static IP. I'm sure that a healthy minority of folks on HN do, but we're hardly representative of the general population.

Your IP is a lot more static than you give it credit for. It's not like the dialup era where you get a new IP each time. For example I have a dynamic IP on my cable modem, but it might as well be static as it only changes after there is a long term power outage. Also, it's likely if you're on a home connection most often, then you only have a limited pool of 32k or so IPs, which dramatically lowers the bits of information needed to identify you.