I've often wondered how linkfarms and other methods are considered bad SEO as surely it's possible for anyone to submit a domain in this way. If you want to sabotage a competitor, then surely this is possible? How do Google and other search engines take this into consideration?
Google considers bad seo, any backilnking strategy apart from directory submissions. Backlinks are like votes. When you get an anchored backlink from a site, google thinks "X site says Y site is about <anchor text>". You can clearly see how google NEEDS to register true votes to and from websites in order to show the most relevant content. This is why Google is against linkfarms...because you can give yourself a vote. And no, I don`t think "link sabotage" is real.
Search engine devs aren't idiots. They're fully aware of the possibility for anti-competitive practices. Generally, they won't penalize a site for any negative content relating to that site that is posted on another site - they just won't reward the site for any backlinks they consider to be spammy.
Its bad seo, because all your work is wasted as the offending farms are deindexed etc, then you have nothing, you loose rankings. Link farms are probably good for short term gains. I wouldn't go down that route.
You can not sabotage a web site from outside (aside from DDos attacks). If it would be possible to sabotage web sites, there would be people sitting all day and sniping other web sites. It is a myth that is just not true.
Never go for link farms as they are usually spammy, buy links from genuine website and you're on your way to the top!