tedster - 4:32 pm on Aug 18, 2010 (gmt 0)

Thought I'd add my take on the opening question. I don't think Google would penalize you for linking to one banned site - it's a pattern of many links to bad neighborhoods that would be problematic.

One of my clients checks their outbound links on a quarterly basis, and they always find a couple where the target domain has turned bad and they do remove those links. They haven't seen rankings problems from Google, even when they've accumulated a higher number.

However, they have about 2,000 indexed URLs with a links to at least 1,000 different domains throughout the site, so it's always under 1% of the links that point to a bad neighborhood, and those domains were healthy sites when the links were first indexed.