Officially according to bing/google nofollow links don't pass SEO value. However there is quite a bit of evidence that they do in fact have value.

IIRC we used nofollow on stories in upcoming. Once they were promoted to popular, the nofollow was removed. This was done mainly to prevent people from trying to gain juice by submitting spam stories.

I always wondered about this.

I feel like Digg should be charging to "turn this off" for blogs, or even on a per article basis. I don't mind sponsored stories making it into the mix, but this is another form of revenue that could be explored with more sites that have a metric ass-ton of traffic.

Links with rel="nofollow" have no link "juice" however Digg.com itself is a very prominent and trafficked website, so any links that are not capped with a nofollow have extraordinary value. (A very basic judge of "link quality" from a particular domain is its "PageRank" value, which Digg.com scores at an 8 of 10.)

If I remember correctly, they did not use nofollow.