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Interlinking a ton of blogs used to work great pre-penguin, but yeah now they're really good at detecting site networks like this, even when you try to hide your tracks by spreading your sites out among multiple IP's and stuff.
In this vid Cutts says that if you have a lot of sites you're not likely to put as much effort into them and because of that the network will look bad. But what sucks is this is true even for webmasters who do put a lot of work into it. I've worked with clients who pay others to write unique posts for their entire network of blogs, and they still got smacked by Penguin.. since there's a lot more to consider when running a network of blogs than just your content or your interlinking.
First step is to chill with the site wide sidebars & footers, old school blogs still have network-wide links that display on every single page of every single blog, which creates tons of low value links that are over-optimized for the same keywords = penguin food.
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