With thanks to netmeg for starting the main algo discussion [webmasterworld.com]. I want to bring attention to the updated factors relevant to link development in this discussion. The official Google blog post is here [insidesearch.blogspot.com], please read it because there are some changes there that may affect your link building.
The main algorithm changes reflect what many in last months discussion believed was the main thrust of recent changes. Here are the changes relative to link building that were officially announced:
Tweaks to handling of anchor text
Improvements to processing for detection of site quality.
Better interpretation and use of anchor text.
Here are some other changes that could have some effect, but it is debatable at best:
Fewer “sibling” synonyms.
Better synonym accuracy and performance.
Less aggressive synonyms.
Remove deprecated signal from site relevance signals.
The synonym parts are probably not link related. But could it be tied to how anchor text is tweaked?
What about the deprecated signal? Was that something affecting PageRank flow?
All I'm noticing is the algorithm is suddenly really sensitive to unnatural linking, and I get the feeling Google is cross-checking anchor text with other factors to see if your linkbuilding is legit.
If you are building links unnaturally, Google is now assuming your site is low quality and actually dropping your rankings. In the past, low quality links seemed to just be a waste of money in the sense Google did not count them so they did not benefit you. It's like Google is now not only more sensitive to unnatural linking, but they are counting these links against you.