The first thing to try is to reboot your phone.
If that does not work, if you completely exit the BaconReader application and return, do the ads still appear? The in-app purchase should remove the ads, but sometimes there is a slight delay between purchase and when this happens. If you still see ads after returning, you may want to try going to settings --> Applications --> manage applications and going to BaconReader and stopping the app, then relaunching fresh.
If that doesn't work, you may need to uninstall and reinstall the free version and then the purchase should be recognized.
If none of the above work for you, please let us know.