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They do study the spam reports that they openly solicit -- taking that as input from users that may indicate places they can beef up their ranking algorithms. They are working toward an algorithmic and automated solution rather than an indefinite series of hand tweaks. Of course, they have not yet arrived at the goal.
One kind of report where I have seen Google take quick (and obviously manual) action is when the spam puts adult sites into the results of non-adult keywords and bypasses their Adult filter.
Automated approaches don't completely cut it. The interesting thing is, as much as I don't like yahoo, they don't seem to have the same types of spam problems. Maybe I'm wrong about that, but that seems to be what I'm seeing.
Nothing happened for 3 weeks when I noticed they also had massive hidden text on every page that also had a 302 redirect to everyone they linked to (over 150 pages of hidden text). I reported them to Google Spam again. This time I also reported them to Yahoo spam and MSN feedback. Yesterday that site was not showing up in the site command other than home page on any engine and it had hundreds of pages.
If it would have been an honest host they would have taken the whole site down and there would be no home page showing and they never replied to the letter 4 weeks ago.
So it seems to me it was the search engines that took all but the home pages down because after the hidden text reports the site went down within 5 days on all 3 engines.