It seems to be the case that ads are now being shown at the worst possible times when viewing content. They are long and unskippable. They are obnoxious and honestly I'm just going to stop watching every time it ruins my experience.

I was just about to suggest the exact same idea. Seems you beat me to it by a year. Twitch keeps their ad revenue, the streamers have one less thing to worry about, and the viewers get an improved experience. I don't think it would even be that difficult to implement.

Maybe give viewers an option to watch or start an ad in a certain timeframe, with a timeframe of 60 seconds or 2 minutes where they'll get forced to watch it anyway if they haven't chosen to watch it before this.
This will enable viewers to finish a conversation/wait for a response before being put in an ad slot.

Similar to how creators can snooze ads with the ads manager, allow viewers to Snooze an upcoming ad.
Give the viewer a warning that ads will start to play in 15-30 seconds with the option to snooze them for 1-5 minutes three times and each snooze refreshes after 60minutes.

While I try to always make sure that ads don't interfere with any important gameplay
a) I'm not perfect and I might forget about it occasionally...
b) I already had it several times where nothing is gonna happen, so I play an ad and then someone asks me something and then misses my respond to it because of ads...

Giving the viewer an option to Snooze ads if they think something awesome is about to happen, might improve approval of ads.

Completely agree. "Ads will play in 30m or you can play them now" would be great. Let a user front load up to X amount of ads as well.

Yes I love this its the same system Spotify uses for free users by giving the users a option to watch a cluster of ads for 30 minutes of uninterrupted listening.

The new updates on Ads Manager, on my perspective as a viewer and a streamer, also sharing this perspective with other viewers and streamers, is tragic. One of the most used settings now is a 3-minutes-long ad pack and it can really blow the experience of watching a livestream, randomly losing 3 minutes of the content.

However, I would like to still support my favorite streamers by taking the ads. So the suggestion I have is: Take those 3 minutes of ads that would be just thrown at a random (for the viewer perspective) time and define a time limit for the user to see the ads. For example, it would be something like a display saying "You have 3 minutes of ads to watch in the next 30 minutes" and then the viewer can choose whenever he wants to do that, and if they don't do it until the time runs out, the ads will run anyway.

When the streamer manually starts an ad, then fine, let the ad run immediately (as the streamer is timing it with their content and are aware people can't hear)

But when it comes to auto ads...
Pop up in chat for viewers that you have an ad for viewing, and you have like 5 minutes to trigger it when it suits you, the viewer. For example letting the streamer finish their sentence or their round or race, then start the ad when it fits the viewing.

Full screen, muting the stream. But less obtrusive when the user can choose when it runs.

If the 5 minutes runs out without the user starting the ad, the ad runs.

Let the viewers watch the ad on their own at the desired timing and remove the ad

I have a slightly unorthodox idea for how to handle ads. Let's say a user is watching a streamer for some time. Instead of an ad running for all users, interrupting the stream, it will add it to an personal "ad queue" for each user. Then whenever the user feels like an ad wouldn't interrupt the stream during some down time, or the user doesn't mind the ad running, they can run it for themselves, and only themselves. If they don't run it before another ad runs, then another is added to the queue. I feel like these should also be shorter ads (5-15 seconds). Also the user can choose how many ads are run if there are many in queue.

Then lets say the user closes Twitch without running their ads, the next time they open a stream, they have to watch all the ads in queue. This gives some incentive to watch ads during the stream. The punishment for not watching ads is missing stream, rather than missing stream being the default. Maybe these can be longer ads, but I'm not sure.

The feedback that I have seen about automatic mid-roll ads has been entirely negative, which is not surprising to me at all. No one likes being forced into situations even when it could be good for them.
I've seen lots of posts from streamers saying they don't like the loss of control and viewers saying that you should fix ads for bits, which says to me that the issue is not ads, it is how the ads are being presented.

The entire platform is built around the idea of interactive entertainment, so why are the ads being treated differently?
My suggestion is to give the viewers the controls.

If they have to watch ads, make it transparent how often ads need to be played and give them the option of when to play them so it isn't going to interrupt an important scene.
Make the ads interactive in some way. Enable voting on the sorts of ads that they like/dislike, encourage advertisers to make gamified ads.
Offer incentives for watching the ads. Make ads temporarily unlock exclusive emotes, watch enough ads to get a subscription to a random channel.

The implementation of ads at the moment seems very old, heavy handed and not at all on brand. You should take the parts that people like about Twitch and apply it so that ads become an experience that people can enjoy, not something that they just have to deal with to get to what they actually want.

Streamers that play ads often try to do so in a non-disruptive fashion, playing ads when the stream is least interesting to the viewers. However, interest is subjective. Why not add the ability for viewers to trigger ads beforehand, whenever they feel the stream is boring to them and they are receptive to ads.