Proof that reciprocal links still work?

For at least a year, I have accepted the conventional wisdom that recips are dead and virtually useless. My understanding is that Google essentially pays no attention to recip links. Sure, you can have a few, to round out your SEO portfolio, but they are no longer a ticket up the SERPs.

Now I'm not so sure.

I run a website in a very competitive niche (top key phrase is in 2006's Top Ten Generic Search Terms, according to Hitwise). I started it nearly a year ago, and with a lot of sweat and hardwork, and all white-hat SEO, I have managed to position it quite well in the SERPs, although not yet on page 1 of Google for the main term. Still, some days I get 2,000 - 3,000 unique visitors, and once or twice, when I"ve gotten a great link from a big site, I've had about 8,000 visitors. (So much for the sandbox, BTW).

About 2 months ago, I saw a small site come out of nowhere, and start doing really well in the SERPs. It got to the middle of page 2 for the top key phrase, and has excellent rankings in secondary keywords. The site is brand new -- launched around December 06 or January 07.

How are they doing it, I asked myself. I first assumed paid links, but could find no evidence of it. I needn't have looked so hard. They have done it, frankly, with a ton of relevant, but reciprocal links, from small to medium size sites.

They have broken their "resources" section into 17 different pages, all nicely labelled with relevant categories. In each category, they have anywhere from 10 to 40 links. Let's say average 25, then they probably have a total, very roughly, of about 400-500 outboun links. And, while I haven't counted every single backlink to their site, I have counted enough in a random sample to see that most of the people they link to are the same sort of marketers -- they are giving this site a reciprocal link back.

And that's about it folks. A very nicely built site, from an SEO perspective -- lots of clever internal linking and great anchor text, but in reality, pretty light on content. And certainly no "great" content, no "original" content.

So you'd think they'd be struggling like every other newbie site that still thinks reciprocal linking is a cool idea. But you'd be wrong. They're doing great. They've had a page rank of 5 for at least 2 months. (That's PR 5 after about 4 months online). And remember, the key phrase they are chasing is one of Hitwise's top ten generic terms on the internet.

I thought Google was supposed to be on to this kind of crap a long time ago. But they don't appear to be. (BTW- more proof there is no sandbox). Google appears to be rewarding this site very nicely for a huge recip linking project. I'd love to hear what people think of this.