This is good info but there are so many way to get backlinks than by doing link exchanges, such as article submissions, blog commenting, forum posting, and social book marks. Build up good quality backlinks and your rankings will increase.
Usually webmasters have multiple sites. For example I have many blogs that I have made exclusively to do link exchanges for.
You have it all wrong. To do this effectively all your blogs/websites won't link to each other. You take your side blogs/websites and link to the other persons site. Then that person takes their side blogs/websites and links to your site. Its impossible for google to, "connect the dots" simply because the dots arn't connected! Also, lets face it. No link can hurt you. Even if some of your link exchanges get discounted there are many other that you will do that won't be discounted. Let me tell you this though. I've done seo for quite some time and I've NEVER had results this fast from doing the method I tell you. Before doing this, I struggled to get anywhere in the serps. Why did I struggle? because all the links I got were low quality, either pr NA or 0. Using the new method I have many PR 1, 2 and 3 pages linking to me. Now my main site ranks in the top 10 for a keyword that gets 150k searches per month and has 50 million pages listed for it. Obviously, I am doing something right.
I've done all that. What did I get in return? Low quality links. I don't want low quality links. I want high pr links. Link exchange is the way to get those high quality links! Seriously.