I am also confused on your nofollow point about internal links. Matt Cutts posted a video answer saying nofollow was a waste of time for internals.
http://www.youtube.com/watch?v=4SAPUx4Beh8

It’s about smart use of links and PageRank sculpting. Maybe you want to show people you have a privacy policy but you know it wont show up in the search engines. As a result you would use to nofollow tag for links pointing to the privacy policy. This would mean that the other search engine optimized pages would have more internally passed link juice and the privacy policy page would have less.

But the overall traffic benefit is positive as the privacy policy can still be found by users but as per normal can’t be found in the search engines. And the other pages with additional link juice get more search engine traffic.

Hope that helps

Mark

Where does this fall within your on-page strategies?

It does not funnel more link juice to the remaining links on the page?

I struggle to find a reason why ppl would still employ the use of the no follow tag?

Where’s the benefit?

Nice post.

-mb