By the way, reddit can really learn from Demand Media sites like Cracked, who are very very good at monetizing the same type of low quality social media traffic.
il lays out exactly what they need to do, so there isn't much else to suggest. Simply set up some ad placements on the site and get set up as a publisher with the ad network of their choice. The network does all the sales. (Edit: Later on, they can get into do their own direct sales, sponsorships, etc.) They actually were signed up as a publisher for an ad network for a while, I think, because I remember some ad taking over the screen and everyone freaking out. Maybe that scared them away from the idea because they couldn't control the ad types, I don't know.
I don't know what their mobile numbers are, but they need to get set up as a publisher with a mobile ad network too, such as Ad Mob, Millennial or Quattro.
And since they don't know how anything works, they need to get a few thousand dollars and hire a consultant to explain it all to them. I know they are sensitive about pissing off users, but I suspect that their conversations with Conde Nast and any ad network have ended up in frustrated conversations that go nowhere because they don't understand each other. They need a marketing consultant that understands both worlds to bridge the communication gap. Yes, I'm available.
That said, they should immediately experiment w/ adsense, pubcenter, ideas ala stack overflow of embedding amazon referrals onto all books (not at all obnoxious IME), and some of the better display advertisers. Most of these are free and come with basically no commitment so why not. Also, they should embed quantcast's tracking pixel to get some idea about their demographics in a much cheaper fashion than comscore (NB: this could be misconstrued as an advertisement but I think it's good advice.)
If I had to monetize reddit right now, I would throw up some CPM ads from a premium display network, and then begin aggressively going after big brand advertisers and media buyers. This might mean spending money and hiring at least one ad sales person- but the investment will recoup itself many times over when media buys from big brands start coming in.
Right now, reddit is doing a TERRIBLE job of managing ad inventory, particularly remnant inventory. It also doesn't look easy for advertisers to place ads on reddit. I see a contact form for more information about advertising, but where is your media kit? User demographics? Not all ads are bad, only untargeted ones are. Why aren't there ads for Newegg, or Snorg tees, or collegehumor, etc on reddit? You're in a position to demand premium CPM from advertisers and you're squandering the opportunity.
Right now the ad I see on the front page is "advertise on reddit". This is a terribly wasteful use of remnant impressions, as 99% of your users won't be interested in buying ads, and there is no reason to show them this ad. It will take a few minutes to fill that remnant inventory with a reputable brand ad from a display network.
I understand that you don't want to piss off your users with ads, but Digg manages to generate revenue with strategically placed banner ads without any outcry from users.
I think this problem isn't unique to reddit- it seems like a lot of startups run exclusively by engineers have trouble monetizing intelligently, even when they get significant traffic.
My email is my profile if you want to chat about this further, I can send some links to the kinds of offers redditors might respond to or help you reach out to media buyers who might be interested in doing large buys on sites like reddit.