Technically, it's possible to give free advertising. But you've got to be ludicrously careful. Pick your target well, and be extremely tasteful in advertising their product. It can't be one that would think you're trying to use their trademarks to promote YOUR brand to your audience. It can't be in any way that they would be in any way upset to see their product.
One of the ways Rush Limbaugh (he talked about this last month) got his new model of radio advertising to sell is that he was drinking Snapple one day in his office and said, "This is some great stuff. I'd love to have them as a sponsor, because they make a great product." So, he just started talking them up on the air, and encouraging people to go buy some. At the time, Snapple was a New York company, relatively small, not widely known (and unknown nation-wide). Snapple noticed an uptick in sales, and started investigating. Especially when they started getting calls from outside their distribution region, asking how to get some.
This started people coming to Rush because of proven effectiveness, rather than just based on dollars-per-thousand-who-will-hear-this-ad.
Joshex's suggestion is similar, but poses more problems, because it involves printing and using trademarks in a way other than "conversationally."
Speaking from my perspective, the problem, as I understand it, for the CoH ads was the pay model, as well as the lack of sponsors. The pay model was "per view," and defined a "view" as the ad being on a player's screen for at least half a second. With travel powers et al, people saw it a lot...but zipped by so fast that no "views" were counted.
Were I doing such a thing, I would, first of all, put them in places that people will stare at them for a while because they're stopped. Put them on billboards in loading screens (if your game has such). Put them in places behind Miss Liberty and Quartermasters and other "utility" NPCs around which players gather. Put them in social gathering areas.
But even more importantly, I would probably look into some other effectiveness-measure. I would work with the sponsor to come up with a special deal people could get by entering a code from the ad (radio personalities do this all the time, "Enter offer code 'Rush' for a 10% discount!"). I'd include a small costume bit or new logo people could add to their chest or a re-skinned emote in flavor with the sponsor, if somebody clicks on the ad. I might include a one-per-day-per-ad drop of c-store points for interacting with it in some way (and charge the sponsor per-click). Effectively, getting the sponsor to pay for the c-store points for the player.
But above all, demonstrating effectiveness of the ads is critical. If they get charged for 10,000 clicks per day, but don't see an uptick in sales, nobody will pay for ad space. So tools to make sure that our audience is interested in the ads and helps support us by supporting our sponsors would be important, too.
