Wilburforce - 1:22 pm on Feb 21, 2013 (gmt 0)
I had quite a close look yesterday at the the pages in the top 30 for my key term. Apart from the fact that the Australian and US sites have gone, today's results haven't changed much.
Although the results bear some relationship to Key Term, in most cases its on-page prominence is relatively low (only 4 of the page 1 results have it in h1, 5 in description, 7 in title, and only 3 in all three). Of those with Key Term in all three, one also has it 12 times in keywords, and another 12 times on-page, so although prominence is generally low, higher prominence doesn't appear to be penalised. There isn't any clearly visible policy (unless it is to confound anyone looking for a policy).
There are three with a PR of zero on page 1, one PR1, three PR2, two PR3, and one PR7 that is not relevant for the term (it contains both Key and Term, but not Key Term, and does not address the subject of or supply Key Term). With low PR generally, it doesn't look like backlink profile carries any weight (unless higher profiles carry negative weight)
Further down (#16) we have e.g. theirsite.co.uk/keyterm.html which is a 301 to a page that last had Key Term on it nearly a year ago: the company has very obviously withdrawn Key Term as a product/service.
Quite how Google is now assigning relevance for Key Term is not at all clear from this, but what is abundantly clear is that it is not working.
My own site dropping 70+ pages is clearly some sort of penalty, but nothing is obvious or flagged in WMT (or applies in any other search engine).
I think there is no such thing as "recovery" from this. Google SERPS as a marketing tool is history.