Tedster, it is just my observation and yes google has never said that...
A nofollow means no PageRank is transferred.
Tedster, I am seeing a lot of hesitation in people linking naturally these days. Google's method of passing on PR and the fear of getting penalized for bad neighborhood, may have to with it..
I am just thinking aloud the following algorithm.Do you see anything going wrong with this kind of algorithm in place?
A page with a certain PR passes on PR to all the dofollow links on that page.These links could be both internal and external.Now, if they pass on equal PR value to internal links and the external links, instead of distributing them, wouldn't it be good?
Say if PR 4 is distributed between internal and external links now, what if they pass on PR 4 to internal links (put together) and another PR 4 to all external links (put together).
Of-course they could filter out PR transfer to bad neighborhood.Won't the above help in people linking out to pages that deserve the credit? Now, people do link to pages that they feel are good to their readers but they do a nofollow simply because of how google is transferring PR....