The best way to gain an understanding of how keyword density affects ranking is to dig in and start analyzing. Look for some concordance software. Simple Concordance Program (SCP) is free and there are many others on the market. Round up some high ranking pages, and some low ranking pages, use the concordance software to build frequency and word count lists. Chart your findings and compare.
Now repeat, this time try to find pages that have similar backlink counts. Then repeat, using pages that don't repeat the keyphrase in the title. Then repeat with pages that do repeat the keyphrase in the title.
Build your own filter word list and repeat the process. Experiment. Take a close look at keyword-stuffed pages that rank well and pages with a density less than 1% that rank well.
Take a look at where the keyphrases appear and how they are treated. Are they in anchor text, between header tags, bold, <em>? Frequency? Prominence? Can you reach a conclusion about KWD?
