The first question I received was;
Here is a good question that has been debated on the forums.
Do links from "penalized" websites pass PR? And if they do pass PR, is the value dampened?
This is an important question with all of the link exchange requests now days.
A few issues with this question.
(1) PR is no longer that important. One should really not exclusively look at PR when judging if they should "trade links" with a site or not.
(2) If you do want to use PR as an example, and the site has a PR0, that may tell you the site is penalized. Obviously, you should verify if the site is indexed in the search engines before jumping to any conclusions. So why would you want a link from a penalized Web site? Maybe, you are thinking long term, and you believe the site will lose its penalty. Ok then. Maybe you don't care and you want the traffic from the site, click traffic, then that is cool. But for the sole purpose of trading links? I would stay away from penalized sites.
(3) If the site penalized, why would you want it to pass anything to you? If I was sick, like I was last week, would you want me to touch you? :)
(4) I think the core of the issue is that we do not know exactly if a site is really penalized. The question above asks, if a site is penalized, will it pass PR? A site that is really penalized is delisted and should not have any PR to pass. Get my point?
Hope to helps with the question. Penalized sites may pass more then just PageRank. :)