Google's Matt Cutts latest video has Google admitting they did and do indeed test their search results by turning off linkage data as part of their algorithm. Matt Cutts said the results would be "much much worse" if they did indeed do that in real life.
That does indeed make sense since Google's core algorithm was mostly based on links and PageRank and all these years they spent improving on it and such. They invested so much time and resources in using links to rank sites that dropping it now would make for a mess.
It is funny, because a couple weeks ago, we asked you what you would do if Google dropped backlinks from the algorithm. We so far have over 300 responses and 34% said they would be very excited, 32% said they'd be curious and 17% said they'd be very concerned.
Here is Matt's video on the topic:
Here is the transcription:
So we don't have a version like that that is exposed to the public but we have our own experiments like that internally and the quality looks much much worse. It turns out backlinks, even though there is some noise and certainly a lot of spam, for the most part are still a really really big win in terms of quality of search results.
We played around with the idea of turning off backlink relevance and at least for now backlinks relevance still really helps in terms of making sure that we turn the best, most relevant, most topical set of search results.