The Google Sitemaps team posted to their blog in response to a question at SearchEngineWatch Seattle. Interestingly, they note that links from bad neighborhoods do not harm a site's rankings, only links to bad neighborhoods. It has long been theorized that links from bad neighborhoods do cause ranking problems and this goes against conventional thinking.
Link networks often populate quality content sites with paid text links as part of their program. If at all possible, Google obviously wouldn't want to remove quality content from their search engine. One solution is to make outbound links from quality sites that sell links worth nothing towards building rankings for destination sites.
We've heard this from Matt Cutts before: "Link-selling sites can lose their ability to give reputation (e.g. PageRank and anchortext)." If a link from such a site loses it's ability to transfer PageRank, it can make sense that it doesn't harm a site's PageRank either. But that is not a foregone conclusion. The information comes from the Sitemaps team, and not Matt Cutts' anti-spam force.
In the above entry by Matt, he recommends the use of the "nofollow" link attribute to safely purchase links purely for traffic purposes. This infers links from bad neighborhoods indeed can harm a site's rankings in Google. Perhaps Matt implies this to deter link buying, but the advice is good insofar as links from bad neighborhoods also raises the profile of sites that eventually would come under scrutiny by Google. It can also be assumed that text links from bad neighborhoods can harm a site's rankings in other major search engines than Google.
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