How important are internal links as I have none according to a report
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We used to rank well but not now I am looking at our reports and notice we have no internal links how important is this
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I find it quite unlikely that you have no internal links, unless there is some sort of strange linking practice going on that is causing the error. I'm assuming OSE says you don't have an internal links, right? Check the link syntax to make sure it's standard, and run the site through another crawler.
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More importantly, check GWT to see your internal links. OSE is fine, but just go to the source.
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If you had no internal links, every page on your site would be orphaned - you would not be able to click from one page to another. Perhaps your nav menu is in flash and those links couldn't be identified?
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I'm thinking along the same lines as David, having no internal links could be a development issue and if this is the case then yes it could affect your SEO.
If a Search engine can't reach your pages via internal links (and if there are no other links on the web that point to your lower level pages) then the search engine can't find them meaning they won't get indexed.
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Do you possibly mean no outgoing links?