deadsea - 12:19 am on Dec 17, 2011 (gmt 0)
I've been in a similar situation where we added huge new sections to our PR 7 site, put tons of resources behind it, targeted an entire new set of keywords and found that we just can't rank for them despite having better offerings than the established competition. The new section was a logical extension to our business. A related area that had historically been handled by specialty sites.
I believe that Google classifies sites into niches. This makes it easy for the site to rank for keywords in the niche, but harder to rank outside the niche. I believe they populate these niches based on categories of keywords that people spend adwords money on and software they built that parses the web and tries to make some sort of semantic sense out of it.
I'm not sure if there is a human involved in the site classification (it wouldn't totally surprise me) but my guess is it is all algorithmic. The good news is that the new section of our site grew over time. The bad news is that the time frame has been 2 years and we are still playing catch up with the competition, but at least our site is on page one now for almost all the terms only slightly behind the established competition.
Like you we put plenty of internal links into the section and did lots of link building. It was a wakeup call to me that pagerank and on-site factors are no longer sufficient. Niches and a history of positive user experience within the niche are required for competitive rankings.