Many people believe that directories have become outdated. Of course, you should not submit to directories just for PageRank. As search-engines examine user data and incorporate this information to their algorithm, the traffic you receive from the link becomes paramount again. (Shouldn't it happen to be this way all along? I digress...) And it can be an effective SEO technique, also (we'll reach that).
Did you know that Google specifically mentions the Yahoo Directory along With The Open Directory (DMOZ) in their Webmaster Guidelines? This suggests that Google considers links in the two mentioned directories are really editorial votes of quality. These "trusted links" are the sort a site must both break out of "the sandbox", and also to rate highly in the current (difficult to crack) Google.
Obviously, I really do suggest distributing to more than just these two "directory kings" (Yahoo! and DMOZ). It becomes an issue of sorting through the inferior "rough" out there to find the directory "diamonds." For starters, Best of the Net, Bing bCentral, Gimpsy, and Business.com all have editorial integrity at a level which likely means that search-engines "trust" their links. Outside of these, there are a couple others around the "top grade", but avoid any that sell sitewide links, as that practice all but guarantees that Google won't trust the directory's editorial integrity.
What about the rest? Submitting to lower-quality directories may not propel your site to the top of Google, but my current research indicates it is nonetheless a very efficient link building approach to construct ranks in both Yahoo! and Bing. I haven't ever been one to put all my eggs within the basket, so that I still frequently use these second tier directories to fast (and cheaply!) get my websites to the top of these engines.
In conclusion, directory entry should still have a spot in your link building technique. If you are going for Google ranks alone, you should probably stick simply to the very best tier directories whose lists are considered editorial votes of quality by Google. If you are going for ranks in Bing and Yahoo!, you can cheaply create a slew of effective links by submitting your website to lots of the low quality directories. And of course, if you're trying to rank in all 3 major search-engines, you ought to probably do each of the above. Either way, don't write off directories only yet!
