Here's how to add "placeholder" functionality which works with ajax validation.

jQuery(document).ready(function($){
	// gravity forms custom placeholders
	$('li.gfield .gfield_label').live('click', function(){
		$(this).next('.ginput_container').find('input[type="text"], textarea').focus();
	})
});
jQuery(document).bind('gform_post_render', function(){
	// add any other js here that you want to run before/after validation
	jQuery('.ginput_container input[type="text"], .ginput_container textarea').focus(function(){
		jQuery(this).closest('.ginput_container').prev('.gfield_label').hide();
	});
	jQuery('.ginput_container input[type="text"], .ginput_container textarea').blur(function(){
		if( jQuery(this).val() == "" ){
			jQuery(this).closest('.ginput_container').prev('.gfield_label').show();
		}
	})
	jQuery('.ginput_container input[type="text"], .ginput_container textarea').each(function(){
		if( jQuery(this).val() != "" ){
			jQuery(this).closest('.ginput_container').prev('.gfield_label').hide();
		}
	})
});

li.gfield,
div.ginput_complex span {
	position: relative;
	display: inline-block;
}

li.gfield .gfield_label,
div.ginput_complex span label {
	position:absolute;
	top: 7px;
	left: 11px;
	margin: 0;
}

.gfield_required {
	display: none;
}

jQuery(document).bind('gform_post_render', function(){

	jQuery('.ginput_container input[type="text"], .ginput_container textarea').focus(function(){
		jQuery(this).closest('.ginput_container').prev('.gfield_label').hide();
		jQuery(this).next('label').hide();
	});

	jQuery('.ginput_container input[type="text"], .ginput_container textarea').blur(function(){
		if( jQuery(this).val() == "" ){
			jQuery(this).closest('.ginput_container').prev('.gfield_label').show();
			jQuery(this).next('label').show();
		}
	})

	jQuery('.ginput_container input[type="text"], .ginput_container textarea').each(function(){
		if( jQuery(this).val() != "" ){
			jQuery(this).closest('.ginput_container').prev('.gfield_label').hide();
			jQuery(this).next('label').hide();
		}
	})
});

function gfap_load_scripts() {
	wp_enqueue_script('jquery');
	wp_register_script('modernizr', 'http://cdnjs.cloudflare.com/ajax/libs/modernizr/2.0.6/modernizr.min.js', array('jquery'));
	wp_enqueue_script('modernizr');
}
add_action('wp_enqueue_scripts', 'gfap_load_scripts');

function register_gfap_settings() {
	$setting_vars = array(
		'gfap_class',
		);
	foreach ( $setting_vars as $setting_var ){
		register_setting( 'gfap_mystery', $setting_var );
	}
}
add_action( 'admin_init', 'register_gfap_settings' );

function gfap_menu() {
	add_options_page( 'Gravity Forms Auto Placeholders Settings', 'Gravity Forms Auto Placeholders', 'manage_options', 'gfap_uid', 'gfap_options' );
}

function gfap_options() {
	if ( !current_user_can( 'manage_options' ) )  {
		wp_die( __( 'You do not have sufficient permissions to access this page.' ) );
	}
	echo '<div class="wrap"><h2>Gravity Forms Auto Placeholders Settings</h2><form method="post" action="options.php">';
	settings_fields('gfap_mystery');
?>

<style>.wrap form td span{color:#888;} .wrap legend{font-size:13px; font-weight:bold; margin-left:-5px;} .wrap fieldset{margin:10px 0px; padding:15px; padding-top:0px; border:1px solid #ccc;}</style>
<fieldset>
	<legend>Convert labels to placeholders:</legend>
	<table class="form-table">
		<tr><td><input type="checkbox" name="gfap_class" value="1" <?php checked( '1', get_option( 'gfap_class' ) ); ?> /> Only on forms or form items with the class <b><i>gfap_placeholder</b></i> <span>- By default, leaving this unchecked will apply the effect to all Gravity Forms</span></td></tr>
	</table>
</fieldset>
<p class="submit">
<input type="submit" class="button-primary" value="<?php _e('Save Changes') ?>" />
</p>

<?php
	echo '</form></div>';
}
add_action( 'admin_menu', 'gfap_menu' );

function gfap_script() { ?>

<script>
// Start allowance of jQuery to $ shortcut
jQuery(document).ready(function($){

	// Convert label to placeholder
	<?php
		$gfap_class_pc = get_option('gfap_class');
		if ($gfap_class_pc) {
			$gfap_class = 'gfap_placeholder';
		}
		else {
			$gfap_class = 'gform_wrapper';
		}
	?>
	$.each($('.<?php echo $gfap_class; ?> input, .<?php echo $gfap_class; ?> textarea'), function () {
		var gfapId = this.id;
		var gfapLabel = $('label[for=' + gfapId + ']');
		$(gfapLabel).hide();
		var gfapLabelValue = $(gfapLabel).text();
		$(this).attr('placeholder',gfapLabelValue);
	});

	// Use modernizr to add placeholders for IE
	if(!Modernizr.input.placeholder){$("input,textarea").each(function(){if($(this).val()=="" && $(this).attr("placeholder")!=""){$(this).val($(this).attr("placeholder"));$(this).focus(function(){if($(this).val()==$(this).attr("placeholder")) $(this).val("");});$(this).blur(function(){if($(this).val()=="") $(this).val($(this).attr("placeholder"));});}});}

// Ends allowance of jQuery to $ shortcut
});
</script>

<?php

}

add_action('wp_head', 'gfap_script');

?>