To me, it is very important what other sites your potential link partners are linking to. If they link to too many sites irregardless of the quality of such sites, and especially if they have a directory which links to off topic sites like adult & pharm, there is a decent chance that they may become a "bad neighborhood" which will get you into trouble in the future. I always examine the root of their links directory, and if it is showing thousands of links in all kinds of categories, I generally steer clear of them. As a result, I probably only link to less than 1% of the sites which contact me.
Regarding the 3-way exchanges which are growing in popularity, you might want to examine these in a bit more detail. ~99% of the 3-way link exchange requests I get are from the same large
network of sites which offer you a worthless link from one of their boilerplate sites in exchange from a link to their primary site(s). Sometimes they even say something like, "in return, you will link to our
main site", which should be an obvious giveaway that you are getting the short end of the exchange unless you are brand new and just need a couple links to get started. I get over 100 of these requests each month from the same
network, which is easy to recognize once you have seen one of their sites. They seem to make a couple dozen new crappy sites each month.
But if I feel the site has good original content and is established enough to see that they probably won't turn into a bad neigborhood, then I am happy to exchange links with them. There are just so many questionable sites to sift through these days if you want to err on the safe side. If you don't mind risking your site, then of course just link away.