Internal link structure allows you to tell Google which are your most important pages. But there's only so far you can go with it - something you need to get right, but don't expect it to boost you up the SERPS in a competitive market . . . Unless of course, you've got it shockingly wrong at the moment and It's the one thing holding you back
I think they help. Look at the success of Wikipedia in the search engines - they use a lot of contextual internal links and are top for nearly every term there is!
Internal links are great for giving search engines a clear path to all of your pages on your site, as well as letting them know which pages are more important, and what each page relates to. The best advice I can give regarding internal links is to make sure that your anchor text to a page utilizes your most important keyphrase of that page.
Internal pages linking is good. As long as it is related, you will get a boost from SERP ranking and google PR value if it is anchored and dofollow. So, remove rel="nofollow" on any of you interlinking pages links.
If you don't do it for the search engines, at least do it for your visitors. Improves usability and decreases bounce rate.