"Publishers are still welcome to place images above the ads. The only exception is if it's in such a way that it looks like the images are part of the ads.

When something like that comes to our attention, we'll ask that the publisher place a visible border between the ads and the images, to make it clear that the images are not being served by Google on behalf of the advertisers. We generally do not ask publishers to remove the images completely, we just ask that they add borders to avoid confusion. "

And remember, interpretation of their TOS is soley up to Google. I've seen them talk to people with images on the top or on the side.