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What exactly makes a search engine optimization tactic ethical or unethical? According to the dictionary, an ethical practice is one “conforming to accepted standards of social or professional behavior”. For search engine optimization, I believe that we should get at least some of the “accepted standards” from the search engines themselves.
Some SEO experts would interject that the search engines don't want search engine optimizers to exist at all, so if we ask the search engines, all search engine optimization is unethical. That's not true, though. Google itself says that “Many SEOs provide useful services for website owners...However, a few unethical SEOs have given the industry a black eye.”
So...what makes an unethical SEO? Once again, Google has an opinion on the subject: “Avoid tricks ...to improve search engine rankings. A good rule of thumb is whether you'd feel comfortable explaining what you've done to a website that competes with you.”
Perhaps a better way to put it would be this: You've gotten a phone call from Sam, who is a Google search results quality enforcement officer. He says: “John, I see that you are ranked #1 on the keyword xyz. I want to be sure that you did this in an ethical manner. What methods did you use?” If you feel comfortable telling Google how you got top ranked, then you're probably OK.
Of course, those are only general guidelines. Read the Google and Yahoo webmaster guidelines. You'll find many specifics. You'll also find that the golden rule of of ethical search engine optimization is: “Don't do anything to trick the search engines, or to represent your pages differently to the search engines than you do your human visitors.”