You know I have been talking about is for several years now. When I started as a full time SEO technician several years back, the company I worked for (Visible Technologies) used linking as their main strategy for rankings. While they obtained the rankings quickly, the search engines slowly started catching up to all those websites that used such sites at linkmarket, and linkworth in order to increase their rankings. Funny thing is that now I get to tell them "I told you so".
Does this mean that Google doesn't approve of linking? By all means, NO... Google supports linking in every way, in fact they encourage website owners to obtain external links in order to help their rankings. What they don't approve of is the purchasing of links in order to increase rankings.
The point of rankings within the search engine results pages (SERPs) is to help the user find what they are looking for efficiently. If a website has next to no relevant content and has rankings just because of a load of external links is that helping the user find what they need?
If the website has relevant content to what the user is looking for, then chances are the user isn't only going to find what they need, but the user is going to be so excited about the site that they are going to either blog it, or tell others about the site by adding a link to it.
This was the whole basis to Google's algorithms from the beginning. The problem is that SEO's have been using black hat techniques in order to increase rankings quickly (linking, doorway pages, duplicate content, etc) leaving Google and the other search engines having to adjust the algorithms in order to bring the most relevant results.
When optimizing a website, always be sure to provide your user with relevant content, and landing pages that reflect what each user would be looking for. For example, if someone is looking to start dating online they would want a website that offers advice for those wanting to date online. Thus when a user types in "Online Dating Advice" They would find a website and a webpage that reflects the online dating advice.
Google talks more about this and Matt also adds a bit about how Google made some algorithmic changes recently which resulted in a lot of websites loosing pagerank and search results - Purchasing Links is BAD -
Read it and memorize it well...
Always remember that if you have to adjust because your site lost rankings, then you aren't optimizing correctly.