Darn troi21, I have so much work to do and I see this great question, impossible for me to pass by, thanks ;)
Distinguish or create?
Let me be the first to say there is a lot of ugly linking going on, by whatever name folks want to call it. I do like a good link directory, it makes my job easier for one.
A link directory develops out of planning. It’s obvious there’s been some research, analysis and then a strategy is formed.
Key components I use to differentiate between a link farm and a link directory
a. Is there a structure in place, with separate categories?
b. Do the categories make sense? – see Brett’s comment
c. Are the listings presented in a uniform manner? – title/description about the same length like you’d see in ODP or Yahoo.
d. Are there a reasonable amount of listings per page? – 10-25 as opposed to hundreds.
e. Does the directory stand alone or is it and extension to the site offered as a resource?
f. If it stands alone are the links balanced by content?
Other things I really like to see in a directory include:
A linking policy stated.
A method posted for communication.
A bit of text content telling me why the category is there.
Static links with no redirects, frames, or tricks of any kind.
Not polluted with banners or more affiliate links than link partners, ugh.
A link direct from the homepage.
Not every link going out has a return link coming in, not totally a reciprocal directory.
Now, I have seen some cleverly designed link farms, some better than other and they exist quite well and I believe fit a necessary purpose to move information around. Kind of like bottom feeders that clean up the waste in a pond, ugly but needed. I mean are you going to run home in glee because you caught a bottom feeder, probably not. I think the same holds true about link farms. You may get in one but it’s not something to ring the bells about.