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wait, when you say this do you mean broken links on your site or links on other sites pointing to pages on your site that no longer exist? "Since then, we have taken very careful steps to remove all links coming into these deleted pages, but for some reason, WMT continues to report them.  " If internal links then by all means fix broken links on your site. If external links pointing go your site, don't have those sites remove your links - just 301 that old url that they are pointing to (if there is PR to be gained) and point them to the closest similar page or section. If it's only a link here or ther then let them 404. 404ing is a natural occurance and Google has no problem with it.

Hello, you said: "From Google's perspective a nofollow link means.... "They paid us!". I understand this perfectly, but you are not saying that it's against google policy to get paid for banner ads on our website, right? As long as I have a space dedicated to advertising and I use NOFOLLOW attribute I can sell spaces on my website, right? Thanks a lot!