Great Topic. I don't buy into the theory... Its obvious something is happening, but I don't think it's a blanket sand-box effect.
I fairly recently purchased quite a bit of PR for client, and they jetted up to a top contending spot as soon as the links were picked up ( commercial $$ terms, but a relatively small market fighting for the top 30 spots or so ). Then, the link site over-sold its PR, and they drifted down to a second page spot, which I'm slowing pulling up.
I think that the PR leveraged at the site should be "worth" far more than is being "calculated" presently, but it was very clear that there wasn't a time delay associated with PR transfer.
Google's definately playing around with something. I have another site which I manage which has significant PR thrown at it, that was wiped from the serps about 3-4 weeks ago. It ranked alot better with a PR4 than a PR7.... If I wasn't watching closely ( I was ), I might have thought that it was the PR that was killing it.
In my opinion, the severity of the situation can be better viewed by viewing more non-competitive key term areas. It looks to me like Google is just busy shooting itself in the foot.
Let me give one concrete example... Google at times is using some sort of key-term coupled with link anaylsis word filtering. My proof is my ability to bypass it.
Take a key term that google should not be having a problem with: tile installation dallas texas.
How difficult is that? If you do a search on all major search engines, my client holds at least the 2nd position, and I haven't even gone back and tweaked the site yet. Hardly touched the site at all; no need.
But study the results on google... I hold the top #1 spot, but I had to bypass the trip filter to get it. I figured this out after Florida, and even knocked two websites off the SERPS by throwing links at them. I wrote an article about it at the time, and it was amazing how FAST the old results returned. I still think a similiar filtering method is being used, but I think it's toned way down.
If you study the difference in Google term results with very related key terms, the results are night-and-day different. Look at tile installation dallas tx rather dallas texas.
Now, I could take the site and turn up the SEO... But I know from experience, it won't make one bit of difference.
You'll notice that ALL of the real dallas texas contractors are not on page 1 of Google. They are on yahoo, and they are on msn. That is NOT a coincidence. I have a dozen more equally ugly examples I've been studying.
Now, if there were 30,000 dallas tx tile installation contractors, then I bet we wouldn't be able to see the descrepency.
I hate to say it, but there is a giant gaping hole in google's algo right now, clear as day. One of these days, the porn industry is going to see it, and Google's going to pay a serious price for the state of its SERPS. Imagine every single key term combination that would normally require a solid & quality website PR 3/4 for a top ten listing, all being dominated by a few porn spammers. I could do an example right now. I've held off, because every once in awhile, I see a completely different set of results for a few minutes that look decent. It looks to me like Google is still working on it.
I won't say too much more, but the evidence has thus been presented - in black on white.
All of this is one reason I stopped posting on WbMstrWld.
I don't see any of these "Google challenges" as "Hilltop" algo implementation, successful "spam filtering" or any other of the hair-brained ideas passed around the UN ( did I say U.N.? Freudian slip ).
The above simple example is not an isolated incident. I think the more competitive the terms are, the harder it is too see the effects, but I think that the problem is widespread.
Anyway, those are my observations, based on what I see, but may not necessarily reflect what others see, so...