2. Maybe it's lame.
3. Rarely successful? Any data there? It has certainly worked for the people I've done it for.
4. PageRank is not the goal. Qualified, revenue-producing traffic is the goal.
Lame or not the proof is in the search engine result position.
Your presentation has lots of solid on-site SEO stuff, which is great. But if you're going to do an active SEO campaign--i.e. you're trying to get the maximum amount of high-converting traffic--it's not enough to have a site that's fully indexable. That's one coefficient, so you ought to maximize it, but it's not the only one.
There are three groups of people who should have an interest in a given site:
A) The site owner, who wants it to get relevant traffic and generate business.
B) People who write online, and need new content to write about--especially if it's useful to their target audience.
C) Potential customers of A), many of whom are part of the target audience of B).
Now, it is in nobody's interest for A) to refuse to speak to B) on the grounds that C) will somehow find A) naturally.
I believe this guy was punished because his "experts" used paid links. Can you find a reference for the assertion that he was punished for hiring someone to help him rank well, or that Google believes in punishing such activity? Bear in mind that the head of Google's webspam team routinely speaks at SEO conferences, where presumably all of the attendees are in the results-gaming business. If your worldview is correct, that's really weird; like the CEO of Brink's making a habit of speaking at safecrackers' conventions.
If you want to put a lilly-white hat on, the question you can ask is, "Given how valuable my content is, what lists, indexes, blogs, etc., would be interested in telling their readers about us?" Better yet, concoct a system where people are rewarded for linking to you in some (ideally pretty natural feeling) way. Yelp badges, the UrbanSpoon spoonback program, 37Signals' penchant for picking fights with the establishment, etc-- all great examples.
You can wait for linkers to stumble onto you-- but you'll never get to page 1 of any desirable phrase that way unless you are truly an order of magnitude better than your competition in terms of linkworthiness... Because you can be darn sure that they know the value of seeking links rather than waiting for them.
I think that's generally a bit of a myth - you/your service have to have not just good content but interesting too - a lot of stuff is just never going to fit that last requirement. Just because I'll never give a shout out to whoever makes my socks (I don't even know) doesn't mean they have no claim on the keyword.
Some people consider driving traffic to your site to be a part of SEO, you don't.
The confusion therefore is caused by the use of different terminology.