I tend to agree that I don’t see anything in the Google blog post to suggest that exchanging links between topically relevant sites is any sort of problem. Like they say, if it is something that might be of benefit to your user then go ahead and do it. One hint here is that Google most likely credits links that are clicked on by humans greater than links that are not, so if you have a link in a link directory that actually gives you some traffic, that links is valuable.
You can also do a number of searches on the web among a many different commercial themes and many of the first sites that will come up are directories. Those are nothing but links, and many of the directories require reciprocal links back.
On the paid links issue, Google and the owner of Text Link Ads both stated the same thing in different sessions of the latest SES conference. That being that high PR sites that sell links are not very valuable anymore because the PR7 or 8 they have is a big red flag to Google, especially if the site doesn’t get much traffic or have any real reason to be that high in PR. There aren’t a ton of these sites, so it’s easy for Google to manually check them out. So, if you do buy links, they both suggested going for mid-PR topically relevant sites that have some traffic. Kind of obvious if you think about it.
Also keep in mind that the Google algorithm looks for natural patterns in your backlinks, so if every link were reciprocal and had the exact same link text surrounded by the exact same description, then that will look suspicious to Google. Where the boundaries are is anyone’s guess.
So, no I don’t think reciprocal linking is dead or dying, it just has to be considered as one component of an overall linking strategy.