GoDaddy (and I am sure all other registrars do something similar) has a feature called "Cash Parking" that you can add to a domain for a monthly fee.
I am sure some people sign up for a variation/misspelled variations of a popular domain, cash park it, and when people land on it, they click the "sponsored ads" which look like links, and you make money.
Given that GoDaddy allows you to add it, I am sure it's legal... but I would imagine that its profitability varies quite a bit and is probably context-dependent.
For example, if I am going to websitebabble.com, but accidentally type wesbitebabble.com, I will immediately realize that I landed on the wrong website, so I will retype the url. But if someone does not know what the original websitebabble.com is supposed to look like, they may click on a link or two first before navigating away.
Sorry for my long-winded response
Interesting idea... I am curious how well it would work.
Sherif