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Great answer, I would just like to add that it may be best SEO practice to use: baseball.com/new-baseball-product instead of baseball.com/newbaseballproduct
Also a direct keyword match on the URL is very powerful. If the product merits the effort I would consider obtaining the URL and making a micro site in addition to creating a landing page on your main website.
2 (or even more) listing results on the first page is better then 1.
I think the posting you are referring to is this: http://www.seomoz.org/blog/how-to-solve-keyword-cannibalization
The posting does not say that the use your anchor terms on other external pages will cannibalize your main page. The problem comes when you link to multiple pages on your site with the same anchor terms.
The suggestion is to use the same anchored term on multiple relevant pages throughout your site to link back to the home page (or desired page). The idea is not to optimize various pages on your site for the same keywords.
Your 1st question:
Go to www.google.com and type in the domain name, with and without the "www." For example, search for "www.domain.com" and then search for "domain.com" (without using quotes around the domain name). If the domain shows up in the search results then it is not banned in Google.
To investigate a domain further at Google, see what Google returns when you perform a site: search at Google. For example, if you go to Google and search for "site:www.domain.com" and then "site:domain.com" and Google comes back with "Your search - site:www.domain.com - did not match any documents," the site most likely is banned at Google.
Your 2nd question:
Was best answered below. Do not associate with any sites that have been determine to be spam, been penalized or even banned from Google.
Drop down menus do not typically effect SEO negatively. In fact a properly optimized drop down menu can be beneficial for letting Google know what your site and pages are for. Just a few things to check for:
1. Avoid Java script drop down menus - Use standard HTML or CSS driven drop downs instead.
2. Use live linked text and not images.
3. Use descriptive keyword in your drop down - For example a drop down for shirts use: Red shirt, Blue shirt, etc instead of just Red, Blue.....
4. Keep in mind the First Anchored text rule. Give seniority to your first anchored text link.
5. Make sure your links are absolute link. e.g.http://www.yourdomainname.com/services.htm
6. Use title attribute to describe the page the visitor will be taken to.
To avoid this, you can use the following ModRewrite rules in your .htaccess file:
RewriteEngine on
RewriteCond %{THE_REQUEST} ^[A-Z]{3,9}\ /index\.html\ HTTP/
RewriteRule ^index\.html$ http://www.domain.com/ [R=301,L]
Also make sure that all your links back to the home page (both in your navigation and your internal links) are www.mydomain.com and not www.mydomain.com/index.php