I've just seen this message for a small site in my webmaster tools. The site only has around 100 domains linking into it so I've had a quick look into it.
It would appear that the site has some links in from a private blog network which is stuffed with duplicated content. Domains shown in webmaster tools as linking to the site have been removed from the index.
I'm guessing that this has triggered the message and the resulting drop in ranking is due to the backlinks from domains being deindexed.