This from a Media Post Email:
As Shari Thurow points out, AdSense creates A LOT of so-called search engine spam, which refers to the myriad link farms and other bogus sites appearing in natural listings that make their money off a combination of AdSense and high natural search placement. Link farming is the process of exchanging links with other Web sites in order to boost your natural ranking. Google considers this a form of spam, and bans sites that have deployed the tactic.
(I added the bold for emphasis).
I’m guessing that they’ve taken this too far in defining it, but it’s scary none the less. Swapping a link or two with a like minded site isn’t just about gaming Google, it’s essentially free advertising for your sites and helps with traffic as well.