My emphasis added...
Perhaps off topic a little but do link wheels work as backlinks if the sites are related and not pure spam?
Probably still would be regarded as manipulative, but that's an educated guess. Most link wheels I've looked into are fairly easily spotted, and on the surface, at least, they appear to be manipulative in intent. They fit the profile of the kind of link scheme that Google doesn't like.... Link schemes http://support.google.com/webmasters/bin/answer.py?hl=en&answer=66356
When you add the kicker "if the sites are related and not pure spam"
, that raises the question for me of what are they doing, then, in a link wheel? (By "related" here I assume you mean by topic, not by ownership).
For link wheel sites not to be seen as spammy, I assume they've got to have independent inbounds on their own, enough to override the closed-network aspect of the wheel, and also to override the probable low quality of many of the participating sites. Is that likely to be the case? Not in the arrangements I've seen.
It's not that these sites necessarily had malevolent intentions. I've seen many that were naive arrangements for mutual backstratching..., not intending to "spam", but not really going out and making it in the big wide world of public opinion.
Some blog roll links might effectively be seen as link wheels. Depends on the frequency, on the quality of the sites on their own, whether anchor text is present, and other intent and quality signals. Same principles I'm sure apply to the degree of reciprocal links a site has.
Relating the question back to the topic of this thread, Google is looking for freely given editorial links, and they're getting somewhat philosophical about what that means, in any type of linking, not just link wheels.
Google is also most certainly not looking at just links alone... it's also looking at traffic and engagement and signs of user satisfaction... so a more efficient approach would be to consider link building that way from the start, and not to see if you can trick Google into falling for the same old tricks with lipstick on them.