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My thinking is that if I have a site with PR5, doing this would give each product page a PR3 or 4 as well as helping the bots to spider the whole site. It also would be convenient for the user.
I'd build one or more site maps (with a maximum of 100 links each, less is better) and link the site map(s) from your index page. That's the best strategy imho.
Drop down lists and menus habe been discussed a lot here. Try a site search for Drop Down [google.com].
I did orginally think that dropdown menus weren't crawled, but examining our competitors site made me think otherwise.
One thing I did notice is that it looks to me like google definitely reads the items on the list. On a keyphrase that one of the competitors sites ranks #1 for, the keyphrase is repeated several times in the dropdown menu with a few words in between, and in their listing at the top of the serps this exact sequence of words appears in the description.
< 60 pages
Home Page -> All Pages (using Drop Down Menu)
> 60 < 1000
Home Page -> 20-40 Sub Pages ->each with-> 10-30 End Level Pages
>1000
Home Page -> 40 Sub Pages ->each with-> 40 Sub Pages
This is so that PR get distributed to the end level pages and all pages get crawled. It is what I have found effective.
of course you may also want to use multiple navigation type to be sure.