AdWords image ads now support flash ads, and is allowing more flexibility with animated ads.

They have updated the animated ad editorial guidelines found here.
It’s a pretty basic list:

1. don’t strobe
2. Do not mimic computer functions.
3. Don’t offer prizes for clicks.
4. Restrict repetition.
5. Stay inbounds.

Of course, one must also follow the rest of the image guidelines, the above are just for animated images.

Inside AdWords Announcement
I found the change through SEO Round Table.

• Inside AdWords answers some Image Ad Question
• Using Google Reader
• AdWords New Feature: Video Ads
• Monetizing from those with javascript disabled
• Pay Per Click Tracking - Images