It is 2007 and we have yet to have the big debate on paid links this year. Matt Cutts of Google has changed that with his dual post on how to report paid links and hidden links. Let me quickly summarize:
(1) Matt explains you can and should report paid links via the Google spam report forms. (2) Matt said there may be a new form out in the future to just report specifically paid links. (3) Google is trying out "some ideas" to "augment" Google's "existing algorithms" with paid links. (4) Matt explains in the hidden links blog post that you should "at least" provide a machine readable way to disclose you have paid links (i.e. redirect link or nofollow). (5) It seems the preferred way is to have a human readable way to disclose paid links (i.e. label text links as paid or sponsored).
I think I covered the guts of Matt's posts in those five points above.
As you would imagine, there is a ton of discussion brewing over these posts. You can see a lot of the blog discussion referenced at Techmeme. Let me summarize the forum discussion for you.
WebmasterWorld has some recent discussion on the topic and here are the posts that jump out at me.
Matt didn't address paid directories. Yahoo directory & BOTW (and maybe a few others) charge for submission reviews not inclusion. Not every site is accepted. The reason those directories are regarded as quality resources is because of their strict editorial policies.
I don't see a difference between the above, but I do at the same time. Some directories take high editorial discretion such as those mentioned. Others will take anything. Some bloggers paid for reviews won't do a review on a site or product they aren't pleased with, showing the same editorial discretion. Some publishers won't link to sites (aka advertisers) they don't review and approve of. Others will link to anything.
Google has a problem with paid links messing up their algorithm. Then they need to fix the problem instead of trying to scare the hell out of publishers hoping they'll fix it for them.
There is a clear distinction between a directory which charges for a review, and a blog that is simply a list of paid links. Simply put, a directory becomes "trusted" as a hub or authority on the subject. It does not mean a blog cannot be an authority, however, it's been made clear that selling links is a no-no.
Search Engine Watch Forums has some nice discussion on the topic as well. Here are some quotes for you.
I think the fact so many people are so angry tends to indicate that it is a good idea.
Google is going to be looking at paid links more closely in the future