I prefer to stay away from swapping links because there is a rick to be banned by Google for doing this. You're right, Google does not like this.
I find that swapping links is perfectly fine as long as it's a related site. It can surely help on increasing your PR.
i stopped link exchanges ages back as it doesn't work in the long run. for more info, read my blogpost
Swapping links is by far the best and easiest strategy to implement. Swapping links is discouraged by google, in fact google doesn't like any webmsaters trying to boost their rankings but everyone does it. The trick is swapping links without the google link algorithm finding out that it is an unnatural link. If you link your site A to site B and then Site B links to Site A. Then the google algorithm will find this out and downgrade the links. The trick is to find people with many websites and then do link trades that way. This is what happens: Site A (your site) links to site B (some other person) Then Site C (owned by the other person) links to Site A (your site) From google's eyes Site B and Site C will look like two independent sites IF Site B doesn't like to site C. The google algorithm is able to connect the dots if Site B and Site C are linked. This strategy is so effective that is helped me go from rank 40-50 to rank 2-9 for my primary keyword which has 45,000,000 pages and gets about 150k-200k searches each month. Not bad, eh?
There are perfectly legitimate reasons for reciprocal link exchanges, but swapping links on "link pages" is a big waste of time.