Robert_Charlton - 8:35 pm on Nov 17, 2012 (gmt 0)
Sidebar links on blogs have definitely been viewed as link schemes by Google in some cases. This is one of those unfortunate cases where Google sometimes assumes manipulation where it may or may not have been intended.
If the blogs are relevant to each other, and not obviously related (say by common hosting setup and templates), and not excessively cross-linked, Google in the past has considered blogrolls to be OK as long as the links were to the blog names and weren't obviously manipulative (say by including targeted anchor text). As I noted earlier, Google is looking at whether the blogs deserve to rank independently of each other.
Links are a primary signal... do the blogs have freely given editorial links from high quality, trusted, independent sources on the web, apart from a small link circle? Even without the anchor text, if too many of the links were blogroll links, rather than editorial links, that in itself might be viewed as manipulative.
Originality is another... too many copied sentences or paraphrased articles can hurt quite a bit. Though originality is a Panda rather than a Penguin factor, linking and uniqueness have been related in Google for many years, and I'd think that together they determine certain thresholds.
Google looks at all these factors together when it evaluates a site. I can see where a completely sincere effort, put up by a bunch of friends who patted each other on the back, may nevertheless not have risen to the level of credibility and originality that Google requires to keep a site high up in competitive rankings.
The motives might have been "legitimate", but the execution might not have lived up to being better than the competition, which is what Google is considering.