There's no doubt Google is tough on sites with affiliate links. If it looks like the primary purpose of the page is just to squeeze the visitor into buying something through an affiliate link, it's very unlikely to rank well.
On the other hand, if the site serves some unique purpose as well, and doesn't just use thin content that appears other places around the web - in Google's words, if it adds real value - then the pages can rank. The judgment calls involved appear to come from their human evaluators, not an algorithm.
What about if the links are nofollow? are they still bad? Also as I mentioned I am opening a new section of my website with these affiliate links (to hotels). But I have more than 1000 pages of quality and original info content. So my question is, can introducing new new section full of affiliate links harm the ranking of my site?
Also is this the best time to do that when google is shifting so radically?
If your content is already recognized as quality by Google, then you're in as good a shape as you can be. And for the other part of your question, nofollow doesn't redeem you, only your content does.
I wouldn't worry about the current "chaos" with regard to making the changes. Just don't be too hasty in deciding whether you created a ranking problem - give it some time even if the rankings do drop in the beginning.
As I mentioned, this seems to be a human editorial decision and that's not likely to come immediately. any immediate ranking change is more likely to algorithmic or even a bug. Maybe fold in the new affiliate links a little bit at a time, at least in the beginning, then give it a month before going bigger.
[edited by: tedster at 5:18 pm (utc) on Oct 29, 2010]
i use alot of affiliate links and from my perspective the bigger concern is not seo but conversion rates. when people scroll over a cj affiliate link, the url can look ugly & untrustworthy. to make a better looking url when users scroll over the link i first send them to a subpage on my site. that page then automatically 301 redirects to the affiliate page. i also use robots.txt to block that subpage to reduce the affiliate link signal. when i made this change my conversion rate went up quite a bit.
deep down i still think google knows there are affiliate links on my page. i provide a good user experience with a high time on site and low bounce rate, so I am seen as ok. imho most affiliates that get penalized are because their websites are horrible and a terrible user experience.