Spyware uses flaws in Internet Explorer to install itself in the background without you knowing about it when you visit certain websites. Adware, on the other hand, is usually included with other programs and is installed at the same time. Technically there is a difference between the two, although most people tend to group both of them together.
And I agree with SteveK about Microsoft charging for spyware programs when it's flaws in their software that allows this in the first place.
