Good on them for admitting wrong on this and backing down. Blindly forging ahead when it was universally hated was never going to do them any favours. Many a good blog post has been written about what they could do to make it better, hopefully some of that feedback will find its way into whatever they do next.
True. I don't think anyone begrudges Twitter the ability to put ads into the mobile app.
Why not just put trending items between "pages" when the user scrolls through tweets, each one about the height of a tweet? (one per page so that it's not too overwhelming)