This is a really interesting article about a recent social media campaign undertaken by Kmart. In short, Kmart gave a $500 gift card to each of 6 influential bloggers and told them to go shopping at Kmart and then write about their experience. There was no censorship or editing, and the bloggers each disclosed the arrangement in their blog entries.
According to independent metrics, the campaign significantly raised Kmart's online profile. That's about the best 3 grand that company ever spent.
I don't think this strategy will work for everyone, and it could certainly become quickly overused. Plus, the bloggers run the risk of losing popularity if their blogs are viewed as corporate vehicles. With that said, it sure shows the power of social media and citizen journalism. I believe there are plenty of ways to capture that power without such a direct commercial inducement.
Digital public relations which seamlessly injects a product, service or brand into the collective digital dialogue is the model that makes sense. Companies that can provide an effective service in this regard should be very successful.