"Link Exchanges if done with relevant sites is not harmful". However don't expect a sea of change by simple BlogRoll exchanges. Guide that blogger to this thread. He has some good info to learn.
This is very old news. It is extremely difficult for Google to distinguish paid and un-paid links. Therefore, it would be easier for them to clamp down anyway. They are not a court of law and you cannot appeal.
Link exchange where it makes sense and is benefical for visitors between both sites. For example, 2 sites exchanging links for one who is selling something and with one that is informational. Yes, both sites should be around the same topic.