bogart is correct. Matt Cutts says that you should not use nofollow on internal links to sculpt PageRank.
All outbound advertising links on your site should be nofollow.
Any outbound link to a site that may be penalized should be nofollow.
You should not be penalized by nofollow links to your site. They will not pass inheritnace factors, but they may still drive traffic.
"Democracy is two wolves and a lamb voting on what to have for lunch. Liberty is a well-armed lamb contesting the vote." -- Benjamin Franklin