this happened to one of my sites 2 years ago it dropped from pr4 to 0 and just this year the site got pr3. The good part was that this didn't affected my SER, even when the site got back its PR there was no change in SE traffic. So there is nothing to wary about.
You should have a top level domain,as most of the blogspot subdomains are used fro spamming.This may improve your situation.
Its not important but if it was my website i would ask myself why i dropped. Pagerank isn't important but it should give you a better view about the amount of incoming backlinks and the quality of those. In that case there might be something wrong with your incoming links.
A website of mine just went from a PR 4 to a PR 0 either on April 27 or the 28th too. I'm still getting good SERP's and search engine traffic though.
I don't pay attention to my page rank or stress over it. I focus on visitors and quality of my websites because I know that is really what matters the most.
It's usually because Google thinks you might be selling or exchanging (which amounts to the same thing as selling) links.
No, you are not penalized by Google. Better focus on high quality original content. Building backlinks over backlinks is dangerous these days, you don't need them if you have original content. Hehe, I can see now a lot of members saying: -Whaaaaat? Backlinks aren't good? Yeap, too many aren't good, the only good is high quality content, that's what loves Google. Back to work...