tedster - 2:53 am on Jun 30, 2010 (gmt 0)
Last year I was asked to look at a site that had major ranking troubles. They had used nofollow extensively, trying to sculpt PageRank to go only to those pages they wanted to see in search results. Even some main menu items had nofollow!
At the time they were below 10% of total traffic from search. I suggested they remove all of the nofollows and they did. One month later they were up to about 30% traffic from search. I haven't checked in with them lately, but I'd guess they continued to improve - unless they got tricky again.
That said, a year ago Matt did say that he uses an internal nofollow in one situation:
The only place I deliberately add a nofollow is on the link to my feed, because itís not super-helpful to have RSS/Atom feeds in web search results.
The biggest problem with internal nofollow that I see is that so few people really understand what PageRank is even at a basic level. And only Google knows how the granular details work today. Trying to play around with that much unknown on anything but a throw-away domain is asking for trouble.