Have just read a thread where it was said that reciprocal links between websites on the same server is bad. As a small and relatively new website designer, I have been in the habit of putting a link to our site in the copyright at the bottom of each page of clients' websites and then putting a link back to their sites in our portfolio page. Is this reciprocal linking a bad idea? Should I put a nofollow link on our portfolio page as soon as their website is established or is this a bit mean? What do most designers do?
Most web designers would not be involved in hosting. So they wouldn't have to worry about the websites being on the same server. In your case I don't think the reciprocal linking is necessarily a bad thing. If you are worried about it at all, I don't see anything wrong with making your portfolio links nofollow. I would think a lot of web designers would use nofollow on their portfolio. The same server reciprocal linking that you have warned about is more of a problem when you have heavy cross linking that is an obvious attempt to affect the search engine rankings.
I don't think you have anything to worry about. There's no rule against reciprocal linking, even for sites on the same server. What Google says is that it looks down on "Links intended to manipulate PageRank" as well as "Excessive reciprocal links or excessive link exchanging". A link from a site back to the company that designed it is perfectly normal and natural. The key term is "excessive". If you had reciprocal links back to your site from hundreds of crappy sites, all on the same server, that could be bad, but it's not what you're doing.
I only add a link to the page if the client agrees on it and most time the pages are not hosted on the same server. But I don't worrie about it even when I get backlinks from my hosters hp (which is hosted on the same server as mine of course^^)