I have a site with many pages that are updated regularly. Often a page needs to be replaced with entirely new content because the old content expired. In this case, the title, content and URL all need to change. Because there are so many new pages being added, the 301 redirects would really pile-up. I have an XML sitemap that is updated every time new content is added or replaced. It doesn't make sense to leave expired content live, but I also don't want to cause a penalty by removing pages that are no longer valid. Would having regular 404 errors from expired pages that have been removed cause a penalty with Google for the pagerank on the site?
If you link to 404 errored pages, then yes - you will receive penalization. If you adjust all your innerlinkings and keep your sitemap up to date you should be fine.