What’s The Latest Thinking On This Blatant Seo Trick?

(a) Website Design company puts links to all their customers websites on their homepage (PR7).

( All of their customers have a link to the Website Design company on EVERY page of their websites.

© One of their customers (a competitor of mine) has gone from a Google PR of “0″ to now a PR6! And if you rank my website for SEO (using best practices) on a scale of 1-10 at 10 (for argument’s sake), my competitors website would rank a 1 or 2. But they have moved ahead of me on a few keywords.

Most of this designer’s customers have PR4-PR6 and it’s very clear why. Now I know that PR Rank isn’t supposed to mean anything but clearly it does in a situation like this. I read comments about a year ago by Matt Cutts that Google doesn’t mind this practice but to me it’s cheating. Is there anything on the horizon that would get this practice penalized? Or should I just have this company host my site too??