Google do not like reciprocal link directories and they can sniff one out a mile off. There was (notice the use of the past tense here) a link directory on my site until recently, but I have now removed it, because it had become as useful as a chocolate teapot.
Whilst the main front page of the site has retained it's Google PageRank of PR5, in one of their last updates, Google relegated that directory, which had also previously had a PR5, to a PR 0.
Meanwhile, I had not altered my linking structure that pointed to it. I had not altered my policies either: I did not link TO any PR0 sites, kept the number of links per page down to a minimum and there were even text descriptions for each entry listed.
Google could tell what it was and acted as they saw fit.
There is no point wondering or whining about it. They can and they are doing so in order to provide better results to searchers. You can like it or lump it, but if you want them to give you decent listings, ranks or send you any traffic, their rules count.
My advice: forget *artificial* reciprocal linking completely. The time taken to maintain the directory, approve/disaprove submissions (mostly the latter, because the only people still asking for links are crappy PR0 sites and spammers) can be much better spent.
When you want to exchange links with other sites, make sure you do so in a natural way, by which I mean write about the other site in some way and place natural links within the body text.
And consider just giving to get. By which I mean, link out to useful things for the edification or entertainment of your visitors giving no consideration to the immediate usefulness of that link to you.
What goes around will come around. Once you are seen as useful, others will link to you. You do then get your links "reciprocated", but it may not be from the same people to whom you linked.
That is the natural way of linking that Google wants to see.
Do not, under any circumstances, maintain anything (other than internal navigation) that could look like merely a list of links / link farm, because Google will find it, won't like it and will penalize it.
Reciprocal linking, in the form of lists or directories merely created for that very purpose cannot do anything to help you with Google (quite the opposite, in fact) and therefore, est mortuus. [RIP]
