aakk9999 - 11:43 pm on Nov 5, 2013 (gmt 0)
The way I understood what Google says on 404 is:
1) If someone links to your site to a non-existing page (404 returned by your site), then this should not affect your ranking.
2) If within your site you link to a non-existing page on your site, then this could be a problem if it is done to a certain magnitude (certain = unknown) and could adversely affect your site's ranking.
Whilst both are bad user experience, the second one is in your control and if not fixed, it may indicate to Google a low technical quality of the site.
I have gone through quite a few site redevelopments where we let lots of old URLs return 404/410 instead of redirecting and it has never had an adverse affect.
I haven't however tried to link internally to own non-existing URLs that would return 404 to verify point 2 (the odd one 404 that may temporary exist on the site as a result of some kind of linking error and subsequently fixed never resulted in ranking issue)