Google simply writes : "... Don't participate in link schemes designed to increase your site's ranking or PageRank. In particular, avoid links to web spammers or "bad neighborhoods" on the web, as your own ranking may be affected adversely by those links. ..."
but then goes on to explain : "... However, some webmasters engage in link exchange schemes and build partner pages exclusively for the sake of cross-linking, disregarding the quality of the links, the sources, and the long-term impact it will have on their sites. ..."
Yahoo's position is vaguer : "... Sites cross-linked excessively with other sites to inflate a site's apparent popularity (link schemes) ..."
MSN clearly broadly states : "... Using techniques, such as link farms, to artificially increase the number of links to your page. ..."
Linking strategists aren't usually very well versed in the art of SEO at all, yet mostly tend to consider themselves experts at SEO. Go figure.