There is a deep discussion going on at WebmasterWorld on how Google defines quality and if quality is a ranking factor.
(1) There is no doubt in my mind that "quality" is a ranking factor in Google. What quality is exactly isn't always easy to define. But with Panda and Google's other updates, quality is a key factor in Google's ranking algorithm.
(2) How do we define "quality"? That is a good question. It is not as easy as looking at AdWords "Quality Score" algorithm, it is much more complex. Google probably has dozens of different metrics for various elements of quality. Some of those metrics include link quality, content quality, page layout quality, and so much more.
Of course, to get a glimpse of what Google is looking for in terms of quality, just go back to Amit's high quality post on the Google blog in regards to helping Panda sufferers.
The WebmasterWorld thread is trying to break down each element of quality but is that effort worth while?
Forum discussion at WebmasterWorld.
Image credit to ShutterStock for golden egg.