When sites link naturally there is going to be some amount of cross linking within a community, but if most or all of your links are reciprocal in nature it may be a sign of ranking manipulation. Also sites that trade links off topic or on links pages that are stashed away deep within their sites probably do not pass much link authority, and may add more risk than reward.

Quality reciprocal link exchanges in and of themselves are not a bad thing, but most reciprocal link offers are of low quality. If too many of your links are of low quality it may make it harder for your site to rank for relevant queries, and some search engines may look at inlink and outlink ratios as well as link quality when determining how natural a site’s link profile is.

See also:

• Indexing Timeline – Matt Cutts states that sites which have many low quality inbound links and / or outbound links may struggle to rank or even get deeply indexed by Google.
• Live Search: Linkdomain:SEOBook.com LinkFromDomain:SEOBook.com – shows SEOBook.com’s reciprocal links
• What a Links Page Should Not Look Like – article by Jim Boykin