Young Guns of SEO - Ann Smarty
Before I start, let me first state that as a rule I don't nofollow outbound links (well, at least I try to keep away from that :) ) . My attitude towards nofollowing is very simple and straightforward (you can call it womanlike) - I tend to never use it at all.
Why? No matter how hard SEOs try to persuade people that links are not votes (they are just links) and nofollowed links do not mean people hate you (it's just that they try to control the mysterious 'PageRank flow'), their voices won't be heard.
A nofollowed link is still a good way to make enemies among webmasters (even if the link under question was not pointing to their own site) who seldom remain untouched when they see rel="nofollow". I've found that it is much better for your 'PageRank flow' to build connections and generously and openly link out than to try to control it by nofollowing your external links.
However there are definitive reasons behind using nofollow (or the meaning people apply to a nofollowed link once they see it). So here are some (most often not-too-wise) approaches to external link nofollowing:
Emotional approach = I don't like you but your site is a great [preferably, negative] example of what I am talking about, I hate linking to you but have to.
Tit-for-tat approach = ok, I remember when you last referred to my site you were using 'nofollow' - now watch me, I am doing the same thing! You-know-better approach (this one actually makes sense) = the guy is using nofollow when linking to his own page (e.g. 'feed' link), ok then I will nofollow my link to that page too (after all, that's for him to decide).
I-will-play-your-game approach = ok, this site always outlinks using nofollow (you guessed it right, read: wiki), so why wouldn't I?
Ugly-URLs approach = oh, you are using those awful ?s=%E8%E3%F0%E0%F2%FC-type URLs, probably you don't care much about SEO, so enjoy my nofollowed link!
I-am-greedy approach = ok, I already linked to your home page just a few lines above, isn't that enough for you? I will nofollow my link to your other page then.
Bad-guys approach = this guy is saying 'black hat' throughout his site; Google must hate him for that. If I link to him, Google will hate me (also).
I-hate-my-competitors approach = these guys are in the same business as me, if I link to them, they will rank higher in Google.
And to conclude, let me give you a small piece of advice: if you don't feel using direct URL to refer to another site, you better refrain from linking at all. To me 'normal' usage of nofollow is when it really makes sense (e.g. I might nofollow a link to dynamic search results for example just because this link isn't really important to the site's owner) but once I feel I am governed by emotions I better do without outlinking at all. Ironically, most people tend to try to see the 'message' (like one from the above list) you were trying to send with your nofollowed link (even if there was none). And it is wise to avoid this emotional coloring at all if you care about your online reputation. After all, you never know...
Dave here; Just wanted to thank Ann for relenting to my never ending harrassment to come ride along the trail with us for a spell. For those of you not familiar with this emerging SEO Consultant and all around Social Media Ninja - Drop by her blog, Make friends on Sphinn (or SEOmoz) and check out her Stumble profile ... hell, buy her a drink while your at it... it's dusty along the trail.
To hear more tales from the Young Guns of SEO - Stay tuned