@indyank - last I tested, Google did index text in a nofollow link (i.e. use a unique phrase, then search for that phrase and the linking page is returned as a result). It seems reasonable to assume that if they index the text then it counts for something as an on-page factor. But I'd also think that if nofollow is intended to stop any transfer of PR or anchor text externally, then any kudos for linking to an authority with it would be lost too.
All speculation on my part though.