Hi!

The reason AA sites were penalized was because they were creating "link farms" with all the linked sites being hosted on the same IP address, rather than showing their subscribers how to do reciprocal linking correctly and create legitimate "link directories". What does that mean? They were primarily linking AA sites to each other - pretty incestuous. The search engines know the IP address and the web host where your web site lives. So it is real easy to achieve reciprocal links from eveyone who is being hosted at the same place. Yahoo! and Google saw this as "gaming" the system and took action against those sites with "link farms". And now, AA is just doing a CYA in their blog to downplay the fact that they should have known better! Their technique got many of their subscribers' sites in trouble.

You reference Matt Cutts, at Google. Dirk Johnson responded in another comment to a Post on this subject here on Active Rain. He wrote in part -

"Unfortunately, people read into his comments what they want to hear. Both he and his colleague, Adam Lasnik, have stated emphatically that they do not have a problem with legitimate reciprocation, and they realize that sites will reciprocate to their mutual benefit, as has been done since long before Google existed.

Reciprocation between sites in the same realm of interest is a fundamental web marketing practice that pre-dates every single search engine. For Google to stomp on that would be for them to try to alter the fundamentals of the World Wide Web. The web is network of links. Sites in the same realm will inevitably link to each other. 

Cutts and Lasnik do have a problem with sites trying to link to anything and everything. An example of that would be a health supplement site linking to automotive sites, gambling sites, etc.

It is not a matter of believing me or them, since reciprocation will continue on unabated, regardless of what I say, or what some SEO consultant says. This is not about opinion. It should be about actual real world examples. And, if you look at actual search results, especially in real estate, you will see that those reciprocating sites are doing quite well. And this condition applies acutely to the most competitive markets in real estate."

Reciprocation is a practice that pre-dates every search engine. It is entirely appropriate for home and real estate-related sites to link to and from each other, for their mutual benefit and the benefit of their visitors.