There is a good new thread at Search Engine Watch Forums named Some questions to ask when souring an SEO/SEM company. The thread creator posted a dozen or so questions that he feels it is wise to ask a SEM/SEO company in order to make an informed decision about which company best suits your needs.
Lee Odden in the thread also points to two past cases of helpful resources on this topic, one at Stuntdubl and the other at Search Engine Watch Forums.
Continued forum discussion at Search Engine Watch Forums.