Google supposedly *punished* certain websites by reducing certain websites' pagerank this week. (Pagerank's correlation to search rank is not completely understood outside of Google.) Matt Cutts, Google's Scoble, supposedly emailed Search Engine Journal, to tell them that the reason was because these websites charged people to link to their websites. The industry term is that they hosted "paid links" on their site. It's been assumed that Google didn't like this practice as they use "links" from site A to site B to rank site B in their search results. If Site B can pay site A, C, D, E.... and Z to put a link on them, then it isn't necessarily the "best" search result - editorially speaking atleast.
So, I understand why Google doesn't like paid links.
But, I don't see how they are ever going to figure out what's a paid link and what isn't a paid link. For example, I frequently link to my client's websites as I am telling stories about them. People pay people to host relevant valuable content on other websites. Business partners pay to belong to organizations that have links to their members' sites.
The web isn't completely editorially driven. It shouldn't be.
Moreover, how they heck are they going to police paid links effectively? It'll be a PR nightmare if they start penalizing webmasters en masse. And how would they even effectively determine who is selling links and who isn't?
Will they hire several hundred Winston Smith's?... "Anyone who talks or writes about selling links will be removed from our index, as if you never existed."
Will they target people that use text link ads? (Can anyone say anti-competitive?)
This is a tough issue for Google. I don't think they can win.
Fighting paid links will be about as effective as fighting terrorism. Futile.
I think they have two options: 1) Tell the world that they are deprecating pagerank and then do it and release no information about how their algorithm works ever again or 2) be completely transparent about how their algorithm works, so that they encourage good link building/content creation behavior.