Directories always play imp role in back link building. links from niche directories are known as best back links. although contextual links are equally imp.
Disagree with both. Firstly, most of the directories might get you only a couple clicks per month, so they're not a traffic source. Secondly, links from niche directories gives us SEO profits, however, they are not best back links - what about topic-related sites? These links gives You both traffic and serp profits at the same time. I don't even mention about directories with redirected links which are unvisible for search engines. Nowadays articles submissions are what would I recommend. Even with low PR they provide hq one-way related links with strong anchors and may gives You the traffic, too.
I agree with Sorror. A link from a keyword rich page, on an on-topic site, with good anchor text will help you the most for SERPs results. But that's not saying that links from niche dirs aren't good for your site. Directories are a good place to start to get a new site some quick backlinks and PR. But if you really want to increase the popularity of your site you have to look into recip link exchanging (although this seems to be gaining less weight now with goog) and submitting keyword rich articles to free articles sites.