Google applied a Page Rank penalty to a significant number of low quality, not relevant site or directories and other sites suspected of selling links.
Google had warned for sometime the risks of link selling and it appears that high Page Rank directory sites and other websites which offered 'sponsored listings' to paying clients were hit by Page Rank penalties during the update.
Sites and directories which were affected by a Page Rank penalty had a few things in common - they all offered paid high PR links and keyword optimized anchor text which were search engine indexable (none used the 'nofollow' attribute). Interestingly, high quality directory sites which didn't allow link anchor text optimization were less badly hit, so it appears that Google was especially concerned about the manipulative affect on its search results caused by optimized high Page Rank links as opposed to links which just used the site name.
When the Page Rank update rolled out, the PR penalty was applied first, followed by the full toolbar PR update. It was interesting to note that the penalty just reduced Page Rank and that the Google ranking of the sites remained unchanged, so it appeared that trust factors were not negatively affected. Many big name sites were hit with Page Rank penalties in the October 2007 PR update, with sites such as Statcounter dropping from PR10 to PR6. Upon examination, we noticed a list of 'recommended' sites on Statcounter's homepage which were search engine indexable links. At the same time many directories which were selling Page Rank also saw a significant drop in Page Rank, with some dropping 2 or 3 Page Rank points.
Recovering from a Page Rank penalty would seem to be possible as Statcounter has now regained its original PR10 by amending all its sponsored links to 'nofollow' and contacting Google. However, some directory sites have not recovered Page Rank, so the moral of the story appears to be that selling Page Rank through optimized text links is now taboo and now has significant risks. It could be that this is just a warning shot across the bows for sites selling links and an indicator that worse penalties may be just around the corner for sites which continue to break Google's webmaster guidelines!