Thanks alot Silvery for this informative reply. This was my main thoughts as well, to focus on presenting a high quality website which derives traffic. When they argued that the outbound links are harming my SEPR the example of the DMOZ jumped to my mind, it is good that I seeked the advise of an expert.
If you aproved what they are saying then I whole idea of a directory will be screwed up and I have to close it.
However, as inbound links are very valuable, I will try to make some listings link back and give them the listing for free.