That's an oversimplification of Google's approach to mass creation of pages vis-a-vis organic SEO. Google will let (many) pages that would never appear in the main results appear in AdWords ads as long as one's credit card doesn't get declined. (There are things Google disapproves of in landing pages, but "having lots of landing pages" is not one of them.)

Do all these landing pages live on the primary domain or are they spread around different domains?

OK, so what about auto-generating pages that you intend to rank for organic search, NOT to advertise in Adwords? Do you think this should never be done? Or are there scenarios where it's gray-hat, but you figure it's safe to do?

You can always throw in some noindex,nofollow tags on the landing page to prevent Google from indexing them.

You could also consider using canonical tags for landing pages that are slight variations of each other [to prevent duplicate content penalties]. This one is really just a guess.