You're correct--you can read this data from the cookies.
To configure the tracking:
connect your adwords and GA
accounts:
in your AdWords account, go to My
Account > Account Preferences, click
the "edit" link next to Tracking
then select the box that says
"Destination URL Auto-tagging".
Click "Save Changes";
still from your AdWords account,
click the Analytics tab and choose
Analytics Settings > Profile
Settings > Edit Profile Information;
check "Apply Cost Data", then click
Save Changes
So how can you tell if it's working? And where does GA store the data?
Grab an initial __utm.gif request and look at the Referer. Appended to the URL is a new parameter "gclid." This is the keyword-specific parameter (unique to your account). It's this parameter that distinguishes your visitors as AdWord-originating (i.e., "google(cpc)") from "google(organic)" Here's one i just grabbed and anonymized (scrambled the numbers/letters):
Referer: http://www.adomainname.com/?gclid=CKr61p31yKACFZlg4wodjj3gbA
You'll see this identical string in two other places in the same tracking pixel request:
(i) as the value for the GIF Request Parameter "utmp" which is the page request for the current page, and, most importantly;
(ii) as the value for the GIF Requests Parameter "utmcc"--the container for the cookies. The specific cookie that holds the adwords data is __utmz, which is actually the container for all referral data. Here's an anonymized example i just grabbed more or less at random (i.e., i just did search in Google using a query comprised of obvious Adwords and then clicked one of the paid links in my search results, then just pulled the Request Header):
utmcc=_utma%3D755416178.1576730350.1269876846.1269143846.1269143846.1%3B%2B_utmz%3D219726107.1269143846.1.1.utmgclid%3CKr61p31yKACFZlg4wodjj3gbA%7Cutmccn%3D(not%2520set)%7Cutmcmd%3D(not%2520set)%7Cutmctr%3Dhomes%2520for%2520sale%3B
HTTP/1.1