Controversial title ain’t it 
I keep seeing this same general question asked - ‘Can ‘bad neighborhood’ inbound links hurt a websites search ranking?’, and I keep seeing the same general answer - ‘inbound links to a website cannot hurt said websites search ranking’. While I agree in theory, I’m not 100% convinced of it in practice. BUT - I am convinced that there’s a more important long-term issue involved when considering the potential for harm from bad inbound links - ‘Perceived Reputation’.
What’s ‘Perceived Reputation’? Well, it’s kind of like the old ‘Judging a Book by it’s Cover’ thing that we’re admonished NOT to do but sometimes do anyway.
For example - a searcher does a search on Google or Yahoo, or MSN or wherever for a specific name or url - and the first 2 or 3 listings feature old or invalid information - or worse still - bad press. Does this have an effect on the searchers ‘impressions’ of the name or url they were looking for? I could be wrong, but to me it’s a no-brainer - Of Course it does - it’s human nature to make snap judgements - how can it NOT.
Granted, because of my profession - when I personally encounter old or invalid data in my searches - I tend to blame the search engine first, then the site manager. And if I encounter bad press - I will at least look into first to see if it’s at all relevant. I wonder if that holds true for the average searcher.
Do most searchers consider or understand the whens, hows,whats and/or whys of their search results, or do they simply accept the returned results as accurate? I don’t want to ‘dumb-down’ the general search population, but I tend to lean towards the latter - which to me indicates that bad inbound links CAN hurt the searched for name/url - IF the returned results are detrimental, invalid, irrelevant, or out-dated.
But what to do? Often when something like this is encountered - there are other problems with the searched for site that prevent it from positioning well. The first step is to go over the site with a fine toothed comb - review all the guidelines offered by the search engines, and make sure your site is up to snuff. When that is done - listing positions will improve.
But mistakes DO happen, search engine algorithms are imperfect and subject to change without notice, and spammy linking and advertising tactics are apparently a fact of life these days - have you SEEN some of the stuff out of Adsense/Adwords these days!
If the bad results are due to an error in the Search Engines reporting - a site manager can only ask, beg, cajole and plead with said engine (sometimes followed by ranting, raving, threatening and a lawsuit) to please, please, please fix it - good luck with that.
And of course a website really has no control over who links to it, nor HOW they link to it. The site manager can make suggestions on how the site should be linked to, and maybe even send a nicely worded ‘please don’t link to us’ message to identifiable bad link sources - but good luck with that too.
There is also that spam report tool in Google Webmaster tools - does that work? Maybe. I’ve heard a lot of bad press, but my personal experience with it has been ok, I think. I DO use it when needed, and sometimes I DO see a change in the serps afterwards, but was it because of spam reports - only ‘the Google’ knows for sure…
But anyway…that’s my .02 - I think Reputation trumps Ranking any day.
