Does this have an effect on your rankings? I can see it possibly having an affect on the "quality" rating of the site but does it make a huge difference? Edit: Just realised, I should have put XHTML stict, meh what can I say? Its late
Guesses: No, Google doesn't validate pages. Yes, its robot gets confused with malformatted tags. So... Do it
Google does not check for code validation. You may want to watch the videos by Matt Cutts: http://www.mattcutts.com/blog/type/movies/ However, try to keep your codes validate
It's easier for search engines (or rather for non-humans) to parse XML formatted data. So ... basically validated code is "cleaner".
i don't think Google or any other search engine cares whether your code is valid XHTML strict or transitional or valid html4, however, clean code has loads of other advantages: easier to parse for browsers and bots, easier to maintain and usually works better in browsers you haven't tested for...
I agree and disagree Having compliant coding decreases server stress, decreases page load time, provides for a better end-user experience and when the rest of the net catches up with the w3c ... especially the mobile applications... there's a huge untapped market segment that will simply vanish from your view if your not complient. Just my two cents.