Aaron Wall has an excellent blog post today that talks about links and the ability of a competitor to harm your ranking by pointing links toward your site. Rest assured, even Aaron says that while this is technically possible, it's extremely rare. He also points out that there are quite a few things you can do to protect yourself against this type of activity. It's a worthwhile read and sheds some light on some linking issues that a lot of small business owners are often a little fuzzy about.

From the post:

This is likely the most important take-away from the post. Building a good quality site and making sure that you are playing within the rules is a great way to help protect yourself against the work of a would be rankings assassin. It's also important to realize that link sabotage is a LOT of work, so chances are that even your most serious competitor is unlikely to spend time trying to harm your own site when that same amount of effort could go toward improving theirs.