OK So let me get this straight. If someone starts a directory for a niche, say toothbrushes does that mean that the directory will end up with a higher pr if it only lists websites related to toothbrushes. Will the sites listed also benefit?
No, PR has nothing to do with the websites listed in the directory. A niche directory, focusing on only websites of that niche will have benefit in the sense of its focused, and yes i believe it will have some benefit to the sites that are listed within the directory. But if you mean benefitting from pr, i dont know, depends on what happens to the directory in the first place, also depends how you set it up, if the directory gets indexed properly......
Sticking with your example of toothbrushes, if everything on the site is truly related to toothbrushes you should see better results in the SERPs than say a general directory with a single category for toothbrushes. The benefit of that is you might be able to get more traffic for people searching for information on toothbrushes and be able to build your niche directory into a resource for all things toothbrush. I'll take high SERPs over high PR any day. I think one mistake many niche directory owners make is straying too far from their core topic. While it might be a good idea for a toothbrush directory to include sections on toothpaste, dentists and even mouthwash; it would serve little purpose and could probably hurt to start a category like "Other sites" where basically anyone can submit. My experience has also shown that if you make a niche directory that is a good resource submitters will be more than happy to link back without it being a requirement. It's so exciting to find new and unknown referrals in my site logs from blogs and forums where folks have talked up my site because they simply liked it or found it useful. If your niche directory becomes too off topic, that won't happen.
one more thing: niche directories are really better than the general ones in many terms and especially for SEO. It's all about the relevancy in nowadays so you are moving to the right direction here..