Google published a post that separate the myths from the facts, as there's lots of misinformation floating around the web about the way AdWords works.
"Myth # 1: Spending money on Google AdWords will influence my website's ranking in Google's free search results.
Fact: Google AdWords and Google's free search results are entirely independent of one another. Spending money on AdWords won't impact your ranking in Google's free search results. Similarly, cancelling your AdWords account won't lead to your website being banned from Google's search results. If you'd like to learn more about what does go into ranking your website in Google search results, check Google Webmaster Central."