Of course they won't, but that's not the point, it just wouldn't be possible in the first place as there is no inter-app capability, much less one that can modify the signed code of an app that has been keyed by Apple.
>Will we be able to opt out of being tracked by advertisers?
I doubt it, but can you do that with any Ad on the iphone at present? I'm not sure how location-aware an ad in a location-aware app is...
>Will we be warned before we download an app that it includes iAd tracking?
No, if it's allowed, then you implicitly agree to it via the terms and conditions of using the App store.
>Will paid apps be allowed to shovel ads at us, and track us?
I imagine that ads will be allowed everywhere, just as they are now. Some apps might be free and ad supported. Some might be reduced price due to ads. Some might even be full price and still have ads.
Really, it's no different from the existing ad capabilities for any platform anywhere. The only difference is that the Ads need to be pre-approved (Hooray, no more stupid diet pill ads I guess). Other than that it wraps advertisers who want to use iAd into using rules to minimise user annoyance. No bad thing.
The only potential issue is analytics, gathering data on the users in order to provide targeted ads. Now this is a 2 sided argument, on the one hand you can say it's bad of Apple to deny access to this data to others and that this is anti-competetive, or you can say that it's good for consumers as it keeps the analytic information within the Apple sphere of influence, and as they already know all about you in the first place it's not really doing you any harm, and it's only keeping your privacy from being compromised by a third party advertiser who you haven't already permitted to know your usage habits.