They cost more and search engines don't like them. They are mostly added near other paid sitewide links and hence can be easily detected by search engines as paid link (which they don't like). But if you are getting links for a directory, then its a different story (and you know why ).
Yes, but many blogs are ranked well, and they are using two methods (blogroll section) that are discussed as big no-no (reciprocal link exchange, site wide links). I think that we can use different strategy for different niches, depends on what methods your competitors are using. For example: if they use 10 sitewide links and yahoo back link tool says 25000 links than it's hard to outrank them with one link per ip. My opinion is to test them and if you see negative ranking, than simply stop paying for them