“If we value the pursuit of knowledge we must be free to follow wherever that search may lead us”. Adlai E. Stevenson II from a speech at the University of Wisconsin, Madison, October 8, 1952.
This is a compendium of our experiments and the experiments of others to determine how the major search engines currently treat the rel=”nofollow” attribute.
A few months ago I placed a rel=”nofollow” on one of the existing test pages that we had used in the past to determine the search engine indexing behavior of keywords in urls. The link was placed to a new test page with style=”text-decoration:none” to reduce the possibility of someone clicking it and signaling the existence of the new ‘linked to’ page as a referrer. Here is a partial screen shot of the page in Firefox using the SearchStatus extension which highlights rel=”nofollow” links. There are no other links to the new test page.

Google, Yahoo and MSN are now showing a recent cache of the page and we can see how they handled the link.
We know that Google and Yahoo follow rel=”nofollow” links in the sense that they will visit the ‘linked to’ page. Valentin Agachi reported this in detail some time ago in his post Does rel=nofollow work? So for our own experiment and starting with the simplest behavior first:
MSN appears not to have spidered and certainly has not indexed the ‘linked to’ page:

Yahoo has spidered and indexed the ‘linked to’ page:

Yahoo also shows the page in the serps at 14/64 for an exact search on the anchor text.

Google has spidered but not indexed the page:

Mark Barrera in his post “nofollow” - Does it Really Work Like Google Claims? has shown that if the ‘linked to’ page is in the index already then Google will rank the page for the anchor text. Google will also acknowledge the link on the cached page with “These terms only appear in links pointing to this page”.
Here is a summary of all our findings:

rel="nofollow" action	MSN	Yahoo	Google
Follows the link	Not proven	Yes	Yes
Indexes the ‘linked to" page	No	Yes	No
Shows the existence of the link	No	Yes	Only for a previously indexed page
In SERPs for anchor text	No	Yes	Only for a previously indexed page

What we can’t know for sure is if the search engines are completely disregarding the rel=”nofollow” in their algorithms. Google says in the Official Google Blog “When Google sees the attribute (rel=”nofollow”) on hyperlinks, those links won’t get any credit when we rank websites in our search results”. MSN appears to disregard rel=”nofollow” links in every aspect and Yahoo seems to treat rel=”nofollow” links the same way as any other link but they are probably disregarding them for ranking purposes.