There is absolutely no mystery about whether inbound links can harm you or not. Apparently Google is very good at determining whether it was you buying links or somebody trying to sabotage you. I had a chat with Tiffany from Google's web spam team at SMX in Sydney and she said that there has been no cases when they got it wrong when they issue penalties.
I have a different theory however. To get penalised you need to demonstrate consistent link buying pattern over time. What typically happens is that SEO people buy high PageRank links only with very closely matched anchor text. Often these links are sold to other webmasters with different site topics. This is very easy for Google to spot.
What happens though is that during this process the rankings will shoot up like crazy and if you were to try and sabotage your competitor you would have helped them in the process and also spent an incredible amount of money. All that for them to submit a reconsideration request to Google and be out of jail within weeks.
As far as I know attempts at cheap forms of link spam in order to penalise competitors have so far been unsuccessful.