Ever since Google downgraded the visible PageRank scores seen in the Google Toolbar for sites that do not use the nofollow on their ads, people have been wondering how it has been impacting the Google search results and algorithm.
Most people are still reporting that PageRank did not impact their Google traffic. But there are questions if sites that were hit but this Toolbar PageRank drop, if they are still passing "link juice" to the sites they link to.
There are two threads on this topic, one at DigitalPoint Forums and the other at WebmasterWorld. The WebmasterWorld thread notes that this topic has been debated in a late November thread named Our audit of paid links from PR-penalized sites which came to the conclusion that paid links are still passing juice, even from domains that have had their Toolbar PageRank downgraded.
How do they determine exactly if it is the PageRank that is impacting that "juice." It is hard to isolate but the overall feeling by webmasters and SEOs is that they still are. That is the important thing here - the feeling of Webmasters.
In my long, Google Declares War on Paid Links: But Why Now? I explained that this is a diplomatic war. The constant struggle for Google to keep the PageRank feature in the Toolbar, while have SEOs and Webmasters not use it as a clue in their rankings, is failing on Google's part. Google won in the fact that SEOs are reporting other SEOs for selling links. But if the overall consensus is that it is not impacting these site's rankings - is that a loss for Google? Probably not.
As I explained, Google's main mission with this is to reduce the desire for publishers to sell links and advertisers to buy links that impact their algorithms. Google made a statement with the Toolbar PageRank downgrade. But at the same time, they kept the quality sites ranking well, so the searcher is not impacted.
Was it meant to be this complicated? I am not sure. Vanessa Fox has an excellent review post named The 2007 Paid Links War, In Review that sums up the history well.