Today I had a meeting with an individual who focuses almost all of his time and resources in linking strategies, I hope to tell you more on the details of that meeting tomorrow. We got on the topic of the problems of cross linking many sites within the same network. Later today, I found this new thread at WebmasterWorld named Cross Linking With On Topic Sites, which was exactly on topic of one of the subject areas we discussed.
Basically what is being reported at the thread at WebmasterWorld is a person's encounter with something we can call the "Network Filter." This filter looks at a site's external linking structure and puts together this pattern where the linking between sites seem to be unnatural. For example, if you have 20 Web sites and all 20 link to each other on every page, this can trigger a "network filter" to be placed on the links on your site. Passing of PageRank and link popularity, even when on topic, can be blocked.
This is not the first time such events have been reported. In fact there is a Web site that tries to report on sites that no longer pass PageRank to other sites, please see this article for more on that.
So what does one do to prevent ones "network of sites" from being stripped of its link passing rights? Well, be smart about how you link and why you link. Think about how most sites naturally obtain links and go from it from that angle. I hope to get into this topic a little more tomorrow.