Is directory submission a good or bad way to build links? I've seen various people saying that adding your site to 'link farms' (maybe that's different to directories) harms your ranking, is this true? Do the search engines penalize you or not for submitting your site to loads of dofollow directories?
My favorite way of building links is through article marketing, and forum posting but I don't think there is anything wrong with directory submissions so long as they are not spammy directorys. You might want to read through this page. http://www.websitepublisher.net/article/link-building/2
I think there are 3 great ways to advertise: Directories, forums and social bookmarks. Thats what I have done for almost 2 years and I have 23 directories (includes bid directories in the 17) and my pr has either stayed the same or gone up on all my websites. They are all phpld 3.3 updated paid scripts (quality) sites. Last update google treated me well. So, as far as I can tell you won't get hurt adding your site to directories, forums or social bookmark sites
Just don't do it quickly or irregularly, i.e 100 submissions in one day. Actually on second thought, directory submission approval times vary a lot so the links would come fairly irregularly which is good. I'd avoid over-submitting to general directories. Aim for directories themed similar to your niche.
Hmm, I think what you should consider more than being penalized by search engines, which happens relatively seldomly unless you really overdo it is the fact that many of those links won't get indexed unless you only submit to a well researched list of directories. Many directories will add your link to non-static pages or your link is link number 5123 3534 in a category on page number 1200, chances of those kind of links being indexed are relatively low. And as has been mentioned both finding niche directories within your sites topic and submitting to the relevant categories will make a good deal of a difference as well.
Submitting to 2000 directories a day won't be a problem either. Too bad it won't help you that much (if any) to get high rankings.
there's really only a handful of directories you would want to be listed in, and those are generally the hardest and most expensive to be in
There is nothing in the Google terms of service that says submitting your site to a web directory will get you banned.
Thank you all, I've found your posts most helpful and have rewarded you all with +Reps. So it looks like it's not worth my time concentrating on directory submissions if it's not going to do much to my ranking.