Reno - 6:35 am on Oct 14, 2011 (gmt 0)
Here again is what Google says about this (the emphasis is mine):
"Don't participate in link schemes designed to increase your site's ranking or PageRank. In particular, avoid links to web spammers or 'bad neighborhoods' on the web, as your own ranking may be affected adversely by those links."
That is a clear threat ~ it's not even veiled ~ and it clearly says that if you link to something called a "bad neighborhood", we may hurt you. That makes my point, and it's from Google's own guidelines. Here's the problem:
 Most people do not have the luxury to read every Google blog or view every Google YouTube video or read every interview that Matt or some other engineer may have given to some source somewhere, in order to make sense of it all. Most of us ~ those who do it at all ~ go to the Guidelines, and thus it's not asking too much for them to be crystal clear in that one central location;
 The web is an ever-changing place, and a website could start out legit but over the course of a couple years may stray off into "bad neighborhood" status, at which point the axe "may" fall and you see yourself drop like a stone, and wonder why;
 And finally, to the best of my knowledge, there is no universal understanding that is written on stone tablets as to exactly what defines a "bad neighborhood". It's kinda' like music ~ I think rap is short for crap, whereas someone else thinks it's deeply relevant poetry. So Google is threatening to hurt a site's ranking for something that is subjective, and THEY are the ones who will decide where the line is crossed.
Sorry but that's too much risk for most people, and thus, while the webmaster community may create its own share of FUD, the fact is that the once highly-valued practice of link exchanging was mostly killed off by the uncertainty created by the Masters of FUD, and in my opinion, the murder was premeditated.