Start with lots of keywords vs. only a few keywords I would have to choose lots of keywords.
How much you pay for traffic from those keywords is another issue all together.
No matter how many keywords you choose you need to drive that traffic to your website and make that traffic take a desired action. No matter how many keywords you target those keywords will only be as successful as your website.
It is important to break down your large keyword lists into very small targeted groups. Once you have your keywords sorted into tightly bunched groups you need to decide where you are going to drive that traffic. Make sure the page you're sending that traffic reflects the ad you have created.
Someone searching for blue widgets does not want to see your entire selection of widgets when they click your ad. They only want to see your blue widgets.
Always start with a large list of keywords. You can find lots of good keywords using tools like
inventory.overture.com and
www.wordtracker.com as well as
www.goodkeywords.com. Once you have a big list of keywords (hopefully thousands) start breaking them down into very small groups. Somewhere around 10-20 keywords in each group. Once you've done this you'll learn a LOT about what people are searching, therefore what they're looking for. If you feel you currently have a page or category on your website that caters to what this traffic is searching for put up an ad for that keyword group and drive traffic to that page/category. Then measure your return on investment. From there just keep on tweaking.
Once you've done this start looking to expand into other areas that you may not have thought about until you've done this keyword research.
Good luck gpconnelly!