Wanted to share my experience with the Disavow tool.
I worked with a client who was hit by a manual link penalty, received the GWT message.
We started by looking at their backlink profile using GWT/Majestic SEO and removing the ones we deemed to be 'spammy'.
It took four tries on the re-consideration request (we got rejected three times) but the penalty was lifted. This was quite recent, traffic was bouncing back to pre-penalty levels, however now they have just been hit by Penguin 2.0.
My theory on this:
I was at a recent conference in the UK and their were some ex-google guys there. He said that when spam team review a manual penalty they only look at 10% of your back links, so it could be that the set they analyse is random and on the fourth try, we were lucky to get a reasonable clean set of links and they lifted he penalty.
Clearly the algorithm can look at more than just 10% of links as well as other factors, so the overall link profile was still 'spammy' and now they have been hit by an algorithm penalty.
So did the disavow tool work? I would say YES, it was the only thing we did. [webmasterworld.com...]