Gotta throw some link love at WebGuerilla, who, despite his claims to the contrary, offers up an excellent in-depth look at his investigations into a link network called GotLinks. A bit of digging on Greg's part has yielded the following:

It turns out that GotLinks was selling access to their network on a popular auction site. He paid some money and was added to the network, but he never hosted a GotLinks directory on his site. To me, that is also an important distinction because it suggests that this isn’t simply a case of an algorithm calculating the percentage of inbound links that are reciprocal and then adding a penalty if a certain threshold is exceeded.

This looks more like a penalty for

a) Exceeding a threshold for the total number of links developed in a specific time frame, or

b) Simply being included in a specific network.

Either way, it should be enough to get you to re-think your linking strategies. In the past, many webmasters (including my ex-client) have taken the position that Google applying a penalty based solely on inbound linking patterns wasn’t really possible. After all, you can’t control who links to you.

If they did that, wouldn’t that open up the door for competitive sabotage?

I know some black-hats who'll be pointing links at some mid-size competitors to see if this really is an effective tactic... In fact, if anyone does, please email me and I'd love to cover it in the future. Link sabotage is just a discovery away from being a prime SEO tactic... After all, if the search engines punish the receiver of the links, they obviously can't recognize the perpetrator - it's a very secure BH technique.