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But isn't the whole idea that if two sites are on the same machine, Google knows they're owned by the same entity, therefore discounting links from one to the other? And don't the first two blocks say that they're on the same server if they match? So I guess I am confused how the C-block - or third block of numbers - can tell Google that they are not owned by the same entity if they are the same?
In my opinion, too much has been made of the "different C-block" issue. Google can see patterns of relationship between websites through many factors -- whois data, coding footprints, un-"natural" nodes on their link graphs, and so on.
Hiding a relationship between two websites is not a fruitful focus of effort and resources, in my opinion. Same B-block, same C-block. shared IP address -- I would not give this area much concern. It takes a diverse backlink profile to compete strongly, at any rate.