Do "Bad" Links Really Matter To G?

There are always differing opinions about whether or not it matters if your site gets 1,000 links from a "bad neighborhood" or not. Some people say G will penalize you, others say (me included) that it doesn't matter at all... at most G will simply disregard them.

This seems to be a debate that we see running through many threads. Of course, if G penalized you for these spammy links, we would all be blasting our competition with them!

So, my question is: does anyone have any actual results through testing that spam links can hurt your site?

Has anyone ever blasted a competitor as a test to see if anything happened to their ranking? I'm not saying that is ethical or the right thing to do (and I'm not interested in doing it), I'm just wondering if it honestly has an effect or not? So if anyone has any real experience, I'd love to hear from you!

I never blasted a competitor site, but i created a single page blogger site and submitted the site to 2000 directories in a single day. You know what after two days it reached the first page, then it was sand boxed by Google for a week. Again it came to first page. It is still there. Now it got PR2!

So Google penalty is not a permanent one as far as I know