I spotted a good Google Groups thread that has Google's official word on how they handle the nofollow attribute in links.
When Google began complying with the nofollow attribute, they posted this blog entry but people are still fuzzy today on how they handle it exactly.
Adam Lasnik of Google replied to this question:
Does Google crawl a rel="NOFOLLOW" tagged link and not give it credit, or does it just stop at the link and not visit that page unless it's found elsewhere?
Adam said the "latter" so, Google will not even let the spider crawl links that have the nofollow attribute. But it will crawl the link if it is found elsewhere.
Forum discussion at Google Groups.
