For those of you that do this, how do you go about it? Do you set it up as a directory for things only related to your site, or do you set up a general directory open to everything? I am trying to set mine up right now and dont know which direction to go.
Personally I only set it up for sites in my niche. Better for the user, and you get incoming links from sites like yours (better for SE's)
You can definitly use a directory as a link script at your website. Try http://www.phplinkdirectory.com/ or http://scripts.site-sift.com/ as a directory script basis, include it in your website design. Create topics within your niche and call it 'your-niche resources' it will add a usefull resource to your website.
For the record, I ended up going with a directory, phplinkdirectory. It blends in with my site well, now all I have to do is finish adding categories and descriptions.
I'd go with a general web directory unless the niche you choose is a very popular topic on the web. For example, a web designers directory.
Glad to see more people starting to use it. I'm working as fast as I can to get the next version ready for everyone.
If you want to use directory as a links page then why should you think of topics other than what blends with your site topic? Go for niche directory which match with your site theme. Returns will be maximum.